We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Companhia Paranaense de Energia (NYSE:ELP) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Companhia Paranaense de Energia (NYSE:ELP) has experienced a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that ELP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To the average investor there are several formulas market participants put to use to value their holdings. A duo of the less known formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outpace their index-focused peers by a solid amount (see the details here).
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the fresh hedge fund action regarding Companhia Paranaense de Energia (NYSE:ELP).
Hedge fund activity in Companhia Paranaense de Energia (NYSE:ELP)
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ELP over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Companhia Paranaense de Energia (NYSE:ELP), which was worth $28.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $28 million worth of shares. D E Shaw, Two Sigma Advisors, and AQR Capital 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 Ellington allocated the biggest weight to Companhia Paranaense de Energia (NYSE:ELP), around 0.08% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to ELP.
Due to the fact that Companhia Paranaense de Energia (NYSE:ELP) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that slashed their entire stakes in the third quarter. Interestingly, Noam Gottesman’s GLG Partners sold off the biggest position of all the hedgies tracked by Insider Monkey, totaling an estimated $1.5 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $1.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Companhia Paranaense de Energia (NYSE:ELP) but similarly valued. These stocks are Valley National Bancorp (NASDAQ:VLY), Ardagh Group S.A. (NYSE:ARD), Grand Canyon Education Inc (NASDAQ:LOPE), and Solaredge Technologies Inc (NASDAQ:SEDG). This group of stocks’ market caps resemble ELP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VLY | 24 | 61415 | 8 |
| ARD | 9 | 81330 | -3 |
| LOPE | 20 | 115370 | -7 |
| SEDG | 28 | 370387 | 7 |
| Average | 20.25 | 157126 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $77 million in ELP’s case. Solaredge Technologies Inc (NASDAQ:SEDG) is the most popular stock in this table. On the other hand Ardagh Group S.A. (NYSE:ARD) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Companhia Paranaense de Energia (NYSE:ELP) is even less popular than ARD. Hedge funds dodged a bullet by taking a bearish stance towards ELP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately ELP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ELP investors were disappointed as the stock returned -39.4% 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 so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
