Is MGE Energy, Inc. (MGEE) A Good Stock to Buy?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze MGE Energy, Inc. (NASDAQ:MGEE) from the perspective of those successful funds.

Is MGE Energy, Inc. (NASDAQ:MGEE) a buy right now? Hedge funds are altogether in a pessimistic mood. The number of bullish hedge fund positions fell by 2 lately. At the end of this article we will also compare MGEE to other stocks including Great Western Bancorp Inc (NYSE:GWB), TerraForm Power Inc (NASDAQ:TERP), and Badger Meter, Inc. (NYSE:BMI) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What have hedge funds been doing with MGE Energy, Inc. (NASDAQ:MGEE)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 18% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in MGEE heading into this year, so the number of bullish hedge fund positions is still up by 50% in 2016. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the number one position in MGE Energy, Inc. (NASDAQ:MGEE). Renaissance Technologies has a $7.2 million position in the stock. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $3.2 million position. Remaining members of the smart money with similar optimism contain Roger Ibbotson’s Zebra Capital Management, Cliff Asness’ AQR Capital Management, and Peter Muller’s PDT Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

Judging by the fact that MGE Energy, Inc. (NASDAQ:MGEE) has faced a decline in interest from the smart money, logic holds that there were a few hedge funds that slashed their entire stakes heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management cashed in the largest stake of the 700 funds studied by Insider Monkey, valued at close to $1 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.7 million worth of shares.

Let’s also examine hedge fund activity in other stocks similar to MGE Energy, Inc. (NASDAQ:MGEE). We will take a look at Great Western Bancorp Inc (NYSE:GWB), TerraForm Power Inc (NASDAQ:TERP), Badger Meter, Inc. (NYSE:BMI), and New Relic Inc (NYSE:NEWR). This group of stocks’ market valuations are similar to MGEE’s market valuation.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $17 million in MGEE’s case. TerraForm Power Inc (NASDAQ:TERP) is the most popular stock in this table. On the other hand Great Western Bancorp Inc (NYSE:GWB) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks MGE Energy, Inc. (NASDAQ:MGEE) is even less popular than GWB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None