Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like PNM Resources Inc (NYSE:PNM).
Is PNM Resources Inc (NYSE:PNM) a buy here? Hedge funds are categorically buying. The number of bullish hedge fund positions inched up by 3 lately. There were 10 hedge funds in our database with PNM positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as WESCO International, Inc. (NYSE:WCC), Nice Systems Ltd (ADR) (NASDAQ:NICE), and Hawaiian Holdings, Inc. (NASDAQ:HA) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What have hedge funds been doing with PNM Resources Inc (NYSE:PNM)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a gain of 30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PNM over the last 5 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, GAMCO Investors, led by Mario Gabelli, holds the most valuable position in PNM Resources Inc (NYSE:PNM). GAMCO Investors has a $83.4 million position in the stock. On GAMCO Investors’s heels is Renaissance Technologies, which holds a $31.4 million position. Some other hedge funds and institutional investors that hold long positions include Cliff Asness’ AQR Capital Management, Dmitry Balyasny’s Balyasny Asset Management and Jonathan Barrett and Paul Segal’s Luminus Management. We should note that Luminus Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, specific money managers were leading the bulls’ herd. Luminus Management, led by Jonathan Barrett and Paul Segal, created the most outsized position in PNM Resources Inc (NYSE:PNM). Luminus Management had $3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $2.3 million investment in the stock during the quarter. The following funds were also among the new PNM investors: Mike Vranos’ Ellington, John Overdeck and David Siegel’s Two Sigma Advisors, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks similar to PNM Resources Inc (NYSE:PNM). These stocks are WESCO International, Inc. (NYSE:WCC), Nice Systems Ltd (ADR) (NASDAQ:NICE), Hawaiian Holdings, Inc. (NASDAQ:HA), and Cree, Inc. (NASDAQ:CREE). This group of stocks’ market caps match PNM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WCC | 22 | 119988 | 0 |
| NICE | 14 | 169988 | 1 |
| HA | 24 | 225910 | 2 |
| CREE | 12 | 45363 | 1 |
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $162 million in PNM’s case. Hawaiian Holdings, Inc. (NASDAQ:HA) is the most popular stock in this table. On the other hand Cree, Inc. (NASDAQ:CREE) is the least popular one with only 12 bullish hedge fund positions. PNM Resources Inc (NYSE:PNM) 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. In this regard HA might be a better candidate to consider taking a long position in.
Disclosure: None
