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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Edison International (NYSE:EIX).
Edison International (NYSE:EIX) has seen an increase in hedge fund interest of late. Our calculations also showed that EIX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Edison International (NYSE:EIX).
What have hedge funds been doing with Edison International (NYSE:EIX)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EIX over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Edison International (NYSE:EIX) was held by Pzena Investment Management, which reported holding $454.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $201.6 million position. Other investors bullish on the company included Zimmer Partners, Canyon Capital Advisors, and Adage Capital Management. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Edison International (NYSE:EIX), around 21.6% of its 13F portfolio. Shelter Harbor Advisors is also relatively very bullish on the stock, earmarking 9.82 percent of its 13F equity portfolio to EIX.
As industrywide interest jumped, specific money managers have jumped into Edison International (NYSE:EIX) headfirst. Point72 Asset Management, managed by Steve Cohen, established the largest position in Edison International (NYSE:EIX). Point72 Asset Management had $14.5 million invested in the company at the end of the quarter. Sara Nainzadeh’s Centenus Global Management also initiated a $6.8 million position during the quarter. The other funds with new positions in the stock are Charles Davidson and Joseph Jacobs’s Wexford Capital, Joseph Samuels’s Islet Management, and Qing Li’s Sciencast Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Edison International (NYSE:EIX) but similarly valued. These stocks are MPLX LP (NYSE:MPLX), Square, Inc. (NYSE:SQ), TD Ameritrade Holding Corp. (NYSE:AMTD), and Sun Life Financial Inc. (NYSE:SLF). All of these stocks’ market caps are similar to EIX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MPLX | 15 | 438138 | 0 |
| SQ | 56 | 2386749 | 6 |
| AMTD | 50 | 1411932 | 19 |
| SLF | 16 | 132762 | 3 |
| Average | 34.25 | 1092395 | 7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1092 million. That figure was $1612 million in EIX’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 15 bullish hedge fund positions. Edison International (NYSE:EIX) 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. 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately EIX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EIX investors were disappointed as the stock returned -20.8% 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 in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
