Is ALE A Good Stock To Buy According To Hedge Funds?

In this article we will take a look at whether hedge funds think ALLETE Inc (NYSE:ALE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is ALE a good stock to buy? ALLETE Inc (NYSE:ALE) investors should be aware of a decrease in support from the world’s most elite money managers lately. ALLETE Inc (NYSE:ALE) was in 20 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. Our calculations also showed that ALE 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Bernard Horn of Polaris Capital Management

With all of this in mind we’re going to go over the key hedge fund action encompassing ALLETE Inc (NYSE:ALE).

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

Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in ALE a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Polaris Capital Management held the most valuable stake in ALLETE Inc (NYSE:ALE), which was worth $38.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $6.8 million worth of shares. Royce & Associates, Millennium Management, and Newtyn 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 Yaupon Capital allocated the biggest weight to ALLETE Inc (NYSE:ALE), around 2.9% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 1.92 percent of its 13F equity portfolio to ALE.

Since ALLETE Inc (NYSE:ALE) has experienced declining sentiment from hedge fund managers, logic holds that there was a specific group of money managers who sold off their entire stakes last quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the biggest position of the 750 funds watched by Insider Monkey, comprising about $5.5 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also cut its stock, about $1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 5 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ALLETE Inc (NYSE:ALE) but similarly valued. These stocks are Energizer Holdings, Inc. (NYSE:ENR), Viavi Solutions Inc (NASDAQ:VIAV), LCI Industries (NYSE:LCII), Kornit Digital Ltd. (NASDAQ:KRNT), Intercorp Financial Services Inc. (NYSE:IFS), Colliers International Group Inc (NASDAQ:CIGI), and W.R. Grace & Co. (NYSE:GRA). This group of stocks’ market caps are similar to ALE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $335 million. That figure was $80 million in ALE’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. ALLETE Inc (NYSE:ALE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALE is 48.3. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ALE as the stock returned 15% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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