Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards American Electric Power Company, Inc. (NASDAQ:AEP) to find out whether there were any major changes in hedge funds’ views.
Is AEP a good stock to buy? Hedge funds were in a pessimistic mood. The number of long hedge fund bets went down by 4 in recent months. American Electric Power Company, Inc. (NASDAQ:AEP) was in 30 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 38. Our calculations also showed that AEP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Platt of BlueCrest Capital Mgmt.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to analyze the key hedge fund action encompassing American Electric Power Company, Inc. (NASDAQ:AEP).
Do Hedge Funds Think AEP Is A Good Stock To Buy Now?
At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 35 hedge funds with a bullish position in AEP a year ago. 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 American Electric Power Company, Inc. (NASDAQ:AEP) was held by D E Shaw, which reported holding $99.2 million worth of stock at the end of September. It was followed by Millennium Management with a $78.4 million position. Other investors bullish on the company included AQR Capital Management, Weiss Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to American Electric Power Company, Inc. (NASDAQ:AEP), around 2.24% of its 13F portfolio. Autonomy Capital is also relatively very bullish on the stock, earmarking 1.63 percent of its 13F equity portfolio to AEP.
Due to the fact that American Electric Power Company, Inc. (NASDAQ:AEP) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few hedgies that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Stuart J. Zimmer’s Zimmer Partners said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $142.7 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $48.3 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to American Electric Power Company, Inc. (NASDAQ:AEP). These stocks are Rocket Companies, Inc. (NYSE:RKT), UBS Group AG (NYSE:UBS), DocuSign, Inc. (NASDAQ:DOCU), General Dynamics Corporation (NYSE:GD), Thomson Reuters Corporation (NYSE:TRI), TC Energy Corporation (NYSE:TRP), and DexCom, Inc. (NASDAQ:DXCM). All of these stocks’ market caps are closest to AEP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RKT | 22 | 319461 | 22 |
| UBS | 17 | 497673 | 1 |
| DOCU | 62 | 3559604 | 5 |
| GD | 37 | 5036732 | -5 |
| TRI | 19 | 315477 | -6 |
| TRP | 16 | 84405 | -5 |
| DXCM | 58 | 1516977 | 3 |
| Average | 33 | 1618618 | 2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1619 million. That figure was $436 million in AEP’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 16 bullish hedge fund positions. American Electric Power Company, Inc. (NASDAQ:AEP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AEP is 39.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately AEP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AEP investors were disappointed as the stock returned 2.7% since the end of September (through 12/18) 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 2020.
Follow American Electric Power Co Inc (NYSE:AEP)
Follow American Electric Power Co Inc (NYSE:AEP)
Disclosure: None. This article was originally published at Insider Monkey.