At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards American Electric Power Company, Inc. (NYSE:AEP) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is American Electric Power Company, Inc. (NYSE:AEP) a buy right now? Investors who are in the know were taking a pessimistic view. The number of bullish hedge fund bets retreated by 4 lately. American Electric Power Company, Inc. (NYSE:AEP) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. Our calculations also showed that AEP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Platt of BlueCrest Capital Mgmt.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s go over the latest hedge fund action encompassing American Electric Power Company, Inc. (NYSE:AEP).
How are hedge funds trading American Electric Power Company, Inc. (NYSE:AEP)?
At second quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AEP over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American Electric Power Company, Inc. (NYSE:AEP) was held by Renaissance Technologies, which reported holding $198.6 million worth of stock at the end of September. It was followed by Zimmer Partners with a $142.7 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to American Electric Power Company, Inc. (NYSE:AEP), around 2.56% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, dishing out 1.93 percent of its 13F equity portfolio to AEP.
Since American Electric Power Company, Inc. (NYSE:AEP) has experienced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of funds who were dropping their entire stakes last quarter. Interestingly, Zach Schreiber’s Point State Capital dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $14.3 million in stock, and Charles Davidson and Joseph Jacobs’s Wexford Capital was right behind this move, as the fund sold off about $5.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to American Electric Power Company, Inc. (NYSE:AEP). We will take a look at DuPont de Nemours Inc (NYSE:DD), The Kraft Heinz Company (NASDAQ:KHC), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), DexCom, Inc. (NASDAQ:DXCM), Digital Realty Trust, Inc. (NYSE:DLR), Electronic Arts Inc. (NASDAQ:EA), and BCE Inc. (NYSE:BCE). This group of stocks’ market valuations are similar to AEP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DD | 64 | 3509743 | 10 |
| KHC | 35 | 10727266 | -4 |
| SMFG | 10 | 101369 | 0 |
| DXCM | 55 | 1710751 | -3 |
| DLR | 26 | 274088 | -3 |
| EA | 67 | 1988616 | -6 |
| BCE | 10 | 176362 | -3 |
| Average | 38.1 | 2641171 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.1 hedge funds with bullish positions and the average amount invested in these stocks was $2641 million. That figure was $754 million in AEP’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. American Electric Power Company, Inc. (NYSE:AEP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AEP is 48.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately AEP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AEP investors were disappointed as the stock returned -0.2% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
