Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider El Paso Electric Company (NYSE:EE) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
El Paso Electric Company (NYSE:EE) was in 15 hedge funds’ portfolios at the end of December. EE investors should pay attention to an increase in hedge fund sentiment of late. There were 14 hedge funds in our database with EE positions at the end of the previous quarter. Our calculations also showed that EE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the eyes of most shareholders, hedge funds are perceived as slow, old financial tools of yesteryear. While there are over 8000 funds with their doors open at the moment, Our researchers look at the leaders of this club, approximately 850 funds. Most estimates calculate that this group of people oversee the majority of the hedge fund industry’s total asset base, and by keeping track of their finest investments, Insider Monkey has uncovered many investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Louis Bacon Moore of Moore Capital
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. Now let’s check out the latest hedge fund action regarding El Paso Electric Company (NYSE:EE).
Hedge fund activity in El Paso Electric Company (NYSE:EE)
Heading into the first quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the third quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in EE a year ago. So, let’s check out 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 GAMCO Investors, which reported holding $91.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $88.7 million position. Other investors bullish on the company included Alpine Associates, Halcyon Asset Management, and Winton Capital 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 4.24% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, earmarking 2.29 percent of its 13F equity portfolio to EE.
Consequently, key money managers have been driving this bullishness. Beryl Capital Management, managed by David Alexander Witkin, established the most valuable position in El Paso Electric Company (NYSE:EE). Beryl Capital Management had $12 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new EE investors: Paul Marshall and Ian Wace’s Marshall Wace LLP and Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as El Paso Electric Company (NYSE:EE) but similarly valued. These stocks are Commscope Holding Company Inc (NASDAQ:COMM), Spirit Airlines Incorporated (NYSE:SAVE), Olin Corporation (NYSE:OLN), and American Assets Trust, Inc (NYSE:AAT). This group of stocks’ market caps are similar to EE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COMM | 29 | 968776 | 5 |
| SAVE | 37 | 329134 | 9 |
| OLN | 33 | 359098 | 5 |
| AAT | 15 | 42601 | 3 |
| Average | 28.5 | 424902 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $425 million. That figure was $343 million in EE’s case. Spirit Airlines Incorporated (NYSE:SAVE) is the most popular stock in this table. On the other hand American Assets Trust, Inc (NYSE:AAT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks El Paso Electric Company (NYSE:EE) is even less popular than AAT. Hedge funds clearly dropped the ball on EE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on EE as the stock returned -0.1% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
