Is AEP Stock A Buy or Sell?

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. (NYSE:AEP) to find out whether there were any major changes in hedge funds’ views.

Is AEP stock a buy? American Electric Power Company, Inc. (NYSE:AEP) was in 32 hedge funds’ portfolios at the end of December. The all time high for this statistic is 38. AEP shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. There were 30 hedge funds in our database with AEP positions at the end of the third quarter. Our calculations also showed that AEP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In today’s marketplace there are numerous metrics stock market investors put to use to grade publicly traded companies. A duo of the most under-the-radar metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outperform the S&P 500 by a solid margin (see the details here).

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 take a peek at the latest hedge fund action encompassing American Electric Power Company, Inc. (NYSE:AEP).

Do Hedge Funds Think AEP Is A Good Stock To Buy Now?

At the end of December, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in AEP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D E Shaw was the largest shareholder of American Electric Power Company, Inc. (NYSE:AEP), with a stake worth $78.6 million reported as of the end of December. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $68.2 million. Adage Capital Management, AQR Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Coann Capital allocated the biggest weight to American Electric Power Company, Inc. (NYSE:AEP), around 3.24% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, dishing out 1.66 percent of its 13F equity portfolio to AEP.

Consequently, key money managers have been driving this bullishness. Engineers Gate Manager, managed by Greg Eisner, assembled the largest position in American Electric Power Company, Inc. (NYSE:AEP). Engineers Gate Manager had $8.8 million invested in the company at the end of the quarter. Jinghua Yan’s TwinBeech Capital also made a $5.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Davis’s Coann Capital, Paul Tudor Jones’s Tudor Investment Corp, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to American Electric Power Company, Inc. (NYSE:AEP). These stocks are Veeva Systems Inc (NYSE:VEEV), Exelon Corporation (NYSE:EXC), Dow Inc. (NYSE:DOW), Carvana Co. (NYSE:CVNA), Baxter International Inc. (NYSE:BAX), CNOOC Limited (NYSE:CEO), and Pinterest, Inc. (NYSE:PINS). This group of stocks’ market caps resemble AEP’s market cap.

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As you can see these stocks had an average of 46.6 hedge funds with bullish positions and the average amount invested in these stocks was $2605 million. That figure was $332 million in AEP’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. American Electric Power Company, Inc. (NYSE: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 43.8. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately AEP wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); AEP investors were disappointed as the stock returned 4.2% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.

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