The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards NRG Energy Inc (NYSE:NRG).
Is NRG a good stock to buy? The smart money was becoming less confident. The number of bullish hedge fund bets decreased by 4 recently. NRG Energy Inc (NYSE:NRG) was in 32 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 50. Our calculations also showed that NRG 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.
Jonathan Barrett of Luminus Management
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. Now we’re going to take a look at the fresh hedge fund action encompassing NRG Energy Inc (NYSE:NRG).
Do Hedge Funds Think NRG Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 48 hedge funds held shares or bullish call options in NRG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the largest position in NRG Energy Inc (NYSE:NRG), worth close to $218.9 million, accounting for 1.4% of its total 13F portfolio. Coming in second is Andrew Wellington and Jeff Keswin of Lyrical Asset Management, with a $110.7 million position; the fund has 2% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of Robert Pitts’s Steadfast Capital Management, Cliff Asness’s AQR Capital Management and Alex Duran and Scott Hendrickson’s Permian Investment Partners. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to NRG Energy Inc (NYSE:NRG), around 18.62% of its 13F portfolio. SAYA Management is also relatively very bullish on the stock, dishing out 14.56 percent of its 13F equity portfolio to NRG.
Seeing as NRG Energy Inc (NYSE:NRG) has faced falling interest from hedge fund managers, we can see that there were a few money managers who were dropping their entire stakes heading into Q4. At the top of the heap, Martin D. Sass’s MD Sass sold off the largest position of the 750 funds monitored by Insider Monkey, totaling close to $18.2 million in stock, and Matt Sirovich and Jeremy Mindich’s Scopia Capital was right behind this move, as the fund dropped about $17.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to NRG Energy Inc (NYSE:NRG). These stocks are RH (NYSE:RH), Sibanye Stillwater Limited (NYSE:SBSW), Alleghany Corporation (NYSE:Y), Service Corporation International (NYSE:SCI), Owens Corning (NYSE:OC), SEI Investments Company (NASDAQ:SEIC), and Genpact Limited (NYSE:G). This group of stocks’ market caps are similar to NRG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RH | 40 | 1623869 | 0 |
| SBSW | 22 | 208952 | 5 |
| Y | 29 | 306105 | -2 |
| SCI | 30 | 727982 | 3 |
| OC | 43 | 682518 | 6 |
| SEIC | 36 | 231552 | -1 |
| G | 28 | 213915 | -1 |
| Average | 32.6 | 570699 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $1087 million in NRG’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Sibanye Stillwater Limited (NYSE:SBSW) is the least popular one with only 22 bullish hedge fund positions. NRG Energy Inc (NYSE:NRG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NRG is 44. 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 33.3% in 2020 through December 18th and beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on NRG, though not to the same extent, as the stock returned 11% since the end of Q3 (through December 18th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.
