We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about FirstEnergy Corp. (NYSE:FE).
FirstEnergy Corp. (NYSE:FE) has experienced an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that FE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are a large number of tools stock traders can use to assess publicly traded companies. Some of the most under-the-radar tools are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite investment managers can outperform the broader indices by a superb margin (see the details here).
Jonathan Barrett of Luminus Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action regarding FirstEnergy Corp. (NYSE:FE).
What have hedge funds been doing with FirstEnergy Corp. (NYSE:FE)?
Heading into the first quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the third quarter of 2019. On the other hand, there were a total of 39 hedge funds with a bullish position in FE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in FirstEnergy Corp. (NYSE:FE), which was worth $499 million at the end of the third quarter. On the second spot was Zimmer Partners which amassed $117.9 million worth of shares. Luminus Management, Adage Capital Management, and Point72 Asset Management 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 Axel Capital Management allocated the biggest weight to FirstEnergy Corp. (NYSE:FE), around 14.52% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, designating 11.37 percent of its 13F equity portfolio to FE.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, established the most valuable position in FirstEnergy Corp. (NYSE:FE). Point72 Asset Management had $101.2 million invested in the company at the end of the quarter. Steve Pattyn’s Yaupon Capital also initiated a $6.8 million position during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Matthew Tewksbury’s Stevens Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FirstEnergy Corp. (NYSE:FE) but similarly valued. We will take a look at Spotify Technology S.A. (NYSE:SPOT), Centene Corporation (NYSE:CNC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), and PPL Corporation (NYSE:PPL). This group of stocks’ market valuations are closest to FE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPOT | 38 | 1558227 | -2 |
| CNC | 62 | 3049441 | 3 |
| WLTW | 35 | 1952657 | -4 |
| PPL | 32 | 598981 | 5 |
| Average | 41.75 | 1789827 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1790 million. That figure was $1419 million in FE’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand PPL Corporation (NYSE:PPL) is the least popular one with only 32 bullish hedge fund positions. FirstEnergy Corp. (NYSE:FE) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately FE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FE investors were disappointed as the stock returned -28.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
