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 Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards PNM Resources, Inc. (NYSE:PNM).
Is PNM Resources, Inc. (NYSE:PNM) worth your attention right now? The smart money is buying. The number of long hedge fund bets improved by 3 in recent months. Our calculations also showed that PNM 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). PNM was in 19 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with PNM positions at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 review the key hedge fund action regarding PNM Resources, Inc. (NYSE:PNM).
What have hedge funds been doing with PNM Resources, Inc. (NYSE:PNM)?
At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the third quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in PNM 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.
According to Insider Monkey’s hedge fund database, Renaissance Technologies has the most valuable position in PNM Resources, Inc. (NYSE:PNM), worth close to $136.1 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, holding a $94.6 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to PNM Resources, Inc. (NYSE:PNM), around 0.76% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, earmarking 0.32 percent of its 13F equity portfolio to PNM.
As industrywide interest jumped, some big names were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the biggest position in PNM Resources, Inc. (NYSE:PNM). Winton Capital Management had $4.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $1.6 million position during the quarter. The other funds with brand new PNM positions are Benjamin A. Smith’s Laurion Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s also examine hedge fund activity in other stocks similar to PNM Resources, Inc. (NYSE:PNM). These stocks are RLI Corp. (NYSE:RLI), Valvoline Inc. (NYSE:VVV), NuVasive, Inc. (NASDAQ:NUVA), and Weingarten Realty Investors (NYSE:WRI). All of these stocks’ market caps match PNM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RLI | 25 | 229633 | 9 |
| VVV | 27 | 371950 | -2 |
| NUVA | 26 | 312278 | 3 |
| WRI | 20 | 175695 | -1 |
| Average | 24.5 | 272389 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $368 million in PNM’s case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand Weingarten Realty Investors (NYSE:WRI) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks PNM Resources, Inc. (NYSE:PNM) is even less popular than WRI. Hedge funds dodged a bullet by taking a bearish stance towards PNM. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 5.5 percentage points. Unfortunately PNM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PNM investors were disappointed as the stock returned -32% 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 so far in Q1.
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.
