How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Edison International (NYSE:EIX).
Is Edison International (NYSE:EIX) undervalued? The smart money is in a bullish mood. The number of long hedge fund positions inched up by 6 lately. Our calculations also showed that EIX isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the recent hedge fund action encompassing Edison International (NYSE:EIX).
How have hedgies been trading Edison International (NYSE:EIX)?
Heading into the third quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EIX over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting 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 $499.5 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $267.2 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Two Sigma Advisors.
As one would reasonably expect, key money managers have jumped into Edison International (NYSE:EIX) headfirst. Steadfast Capital Management, managed by Robert Pitts, assembled the biggest position in Edison International (NYSE:EIX). Steadfast Capital Management had $90.3 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also initiated a $79.3 million position during the quarter. The following funds were also among the new EIX investors: Doug Silverman and Alexander Klabin’s Senator Investment Group, Jeffrey Ubben’s ValueAct Capital, and Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors.
Let’s check out hedge fund activity in other stocks similar to Edison International (NYSE:EIX). These stocks are Realty Income Corporation (NYSE:O), Rogers Communications Inc. (NYSE:RCI), Discovery, Inc. (NASDAQ:DISCK), and Telefonica Brasil SA (NYSE:VIV). This group of stocks’ market values are similar to EIX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| O | 22 | 235043 | 7 |
| RCI | 14 | 364485 | -1 |
| DISCK | 30 | 906989 | 4 |
| VIV | 12 | 56144 | 3 |
| Average | 19.5 | 390665 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $391 million. That figure was $1772 million in EIX’s case. Discovery, Inc. (NASDAQ:DISCK) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Edison International (NYSE:EIX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on EIX as the stock returned 13.8% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
