While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding El Paso Electric Company (NYSE:EE).
Is El Paso Electric Company (NYSE:EE) an exceptional investment right now? The smart money is selling. The number of long hedge fund bets shrunk by 3 lately. Our calculations also showed that EE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the recent hedge fund action encompassing El Paso Electric Company (NYSE:EE).
How are hedge funds trading El Paso Electric Company (NYSE:EE)?
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EE over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in El Paso Electric Company (NYSE:EE) was held by Renaissance Technologies, which reported holding $115.8 million worth of stock at the end of September. It was followed by GAMCO Investors with a $93.7 million position. Other investors bullish on the company included Millennium Management, Alpine Associates, and Halcyon Asset Management. In terms of the portfolio weights assigned to each position Halcyon Asset Management allocated the biggest weight to El Paso Electric Company (NYSE:EE), around 3.74% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, earmarking 2.17 percent of its 13F equity portfolio to EE.
Due to the fact that El Paso Electric Company (NYSE:EE) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that slashed their entire stakes heading into Q4. It’s worth mentioning that John Orrico’s Water Island Capital dumped the largest stake of the 750 funds tracked by Insider Monkey, worth about $20.9 million in stock. Jos Shaver’s fund, Electron Capital Partners, also said goodbye to its stock, about $19.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to El Paso Electric Company (NYSE:EE). We will take a look at Murphy USA Inc. (NYSE:MUSA), AMC Networks Inc (NASDAQ:AMCX), American Eagle Outfitters Inc. (NYSE:AEO), and Vonage Holdings Corp. (NYSE:VG). All of these stocks’ market caps match EE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MUSA | 19 | 224363 | 0 |
| AMCX | 22 | 275908 | 3 |
| AEO | 28 | 359428 | 7 |
| VG | 30 | 369454 | -9 |
| Average | 24.75 | 307288 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $307 million. That figure was $388 million in EE’s case. Vonage Holdings Corp. (NYSE:VG) is the most popular stock in this table. On the other hand Murphy USA Inc. (NYSE:MUSA) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks El Paso Electric Company (NYSE:EE) is even less popular than MUSA. Hedge funds dodged a bullet by taking a bearish stance towards EE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EE investors were disappointed as the stock returned 1.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
