Do Hedge Funds Really Like Atmos Energy Corporation (ATO)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Atmos Energy Corporation (NYSE:ATO) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Atmos Energy Corporation (NYSE:ATO) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Atmos Energy Corporation (NYSE:ATO) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 26. There were 21 hedge funds in our database with ATO holdings at the end of March. Our calculations also showed that ATO 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.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to view the new hedge fund action surrounding Atmos Energy Corporation (NYSE:ATO).

What does smart money think about Atmos Energy Corporation (NYSE:ATO)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the first quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in ATO a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Atmos Energy Corporation (NYSE:ATO), with a stake worth $69 million reported as of the end of September. Trailing AQR Capital Management was GQG Partners, which amassed a stake valued at $44.7 million. Adage Capital Management, Millennium Management, and Paloma Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Quantamental Technologies allocated the biggest weight to Atmos Energy Corporation (NYSE:ATO), around 0.52% of its 13F portfolio. GQG Partners is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to ATO.

As aggregate interest increased, key money managers were breaking ground themselves. GLG Partners, managed by Noam Gottesman, created the most outsized position in Atmos Energy Corporation (NYSE:ATO). GLG Partners had $1.3 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new ATO investors: John Overdeck and David Siegel’s Two Sigma Advisors, Renee Yao’s Neo Ivy Capital, and David Andre and Astro Teller’s Cerebellum Capital.

Let’s go over hedge fund activity in other stocks similar to Atmos Energy Corporation (NYSE:ATO). We will take a look at Fair Isaac Corporation (NYSE:FICO), GDS Holdings Limited (NASDAQ:GDS), Brookfield Infrastructure Partners L.P. (NYSE:BIP), The J.M. Smucker Company (NYSE:SJM), W.P. Carey Inc. (NYSE:WPC), LINE Corporation (NYSE:LN), and Catalent Inc (NYSE:CTLT). This group of stocks’ market valuations are similar to ATO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $153 million in ATO’s case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 8 bullish hedge fund positions. Atmos Energy Corporation (NYSE:ATO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ATO is 51.4. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ATO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ATO investors were disappointed as the stock returned -3.5% in the third quarter 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.

Disclosure: None. This article was originally published at Insider Monkey.