Hedge Funds Are Dumping The Southern Company (SO)

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards The Southern Company (NYSE:SO) to find out whether it was one of their high conviction long-term ideas.

Is The Southern Company (NYSE:SO) worth your attention right now? Investors who are in the know are becoming less confident. The number of long hedge fund positions were cut by 2 in recent months. SO was in 17 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with SO positions at the end of the previous quarter. At the end of this article we will also compare SO to other stocks, including Carnival Corporation (NYSE:CCL), Itau Unibanco Holding SA (ADR) (NYSE:ITUB), and EOG Resources Inc (NYSE:EOG) to get a better sense of its popularity.

Today there are numerous metrics market participants employ to size up stocks. A couple of the less utilized metrics are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outperform the market by a solid amount (see the details here).

Now, let’s take a gander at the key action encompassing The Southern Company (NYSE:SO).

Hedge fund activity in The Southern Company (NYSE:SO)

Heading into Q4, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a reduction of 11% from the second quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Jim Simons’s Renaissance Technologies has the largest position in The Southern Company (NYSE:SO), worth close to $86.1 million, accounting for 0.2% of its total 13F portfolio. On Renaissance Technologies’s heels is AQR Capital Management, managed by Cliff Asness, which holds a $57.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass D. E. Shaw’s D E Shaw, Michael Messner’s Seminole Capital (Investment Mgmt) and Matthew Hulsizer’s PEAK6 Capital Management.

Seeing as The Southern Company (NYSE:SO) has witnessed declining sentiment from the smart money, it’s easy to see that there exists a select few money managers who sold off their positions entirely last quarter. Intriguingly, Stuart J. Zimmer’s Zimmer Partners sold off the biggest stake of all the hedgies followed by Insider Monkey, comprising an estimated $50.3 million worth of stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $6.3 million in shares. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). These stocks are Carnival Corporation (NYSE:CCL), Itau Unibanco Holding SA (ADR) (NYSE:ITUB), EOG Resources Inc (NYSE:EOG), and Monsanto Company (NYSE:MON). This group of stocks’ market caps are closest to SO’s market cap.

As you can see these stocks had an average of 48 hedge funds with bullish positions and the average amount invested in these stocks was $1.74 billion. That figure was just $361 million in SO’s case. Monsanto Company (NYSE:MON) and EOG Resources Inc (NYSE:EOG) are the crowd’s favorites, while Itau Unibanco Holding SA (ADR) (NYSE:ITUB) is the outsider with only 18 bullish hedge fund positions. Compared to these stocks The Southern Company (NYSE:SO) is even less popular than ITUB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.