Is PNM Stock A Buy or Sell?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards PNM Resources, Inc. (NYSE:PNM).

Is PNM stock a buy? PNM Resources, Inc. (NYSE:PNM) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. PNM Resources, Inc. (NYSE:PNM) was in 30 hedge funds’ portfolios at the end of December. The all time high for this statistic is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 23 hedge funds in our database with PNM holdings at the end of September. Our calculations also showed that PNM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Stuart Zimmer of Zimmer Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. 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 let’s take a look at the key hedge fund action regarding PNM Resources, Inc. (NYSE:PNM).

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

Heading into the first quarter of 2021, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PNM over the last 22 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stuart J. Zimmer’s Zimmer Partners has the biggest position in PNM Resources, Inc. (NYSE:PNM), worth close to $179.6 million, accounting for 2.6% of its total 13F portfolio. Coming in second is Alec Litowitz and Ross Laser of Magnetar Capital, with a $147.7 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Israel Englander’s Millennium Management, Mario Gabelli’s GAMCO Investors and John Orrico’s Water Island Capital. In terms of the portfolio weights assigned to each position Water Island Capital allocated the biggest weight to PNM Resources, Inc. (NYSE:PNM), around 4.89% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, setting aside 3.1 percent of its 13F equity portfolio to PNM.

With a general bullishness amongst the heavyweights, some big names have jumped into PNM Resources, Inc. (NYSE:PNM) headfirst. Magnetar Capital, managed by Alec Litowitz and Ross Laser, initiated the biggest position in PNM Resources, Inc. (NYSE:PNM). Magnetar Capital had $147.7 million invested in the company at the end of the quarter. John Orrico’s Water Island Capital also initiated a $69.4 million position during the quarter. The other funds with brand new PNM positions are Simon Sadler’s Segantii Capital, Sander Gerber’s Hudson Bay Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PNM Resources, Inc. (NYSE:PNM) but similarly valued. These stocks are PTC Therapeutics, Inc. (NASDAQ:PTCT), LivePerson, Inc. (NASDAQ:LPSN), Novanta Inc. (NASDAQ:NOVT), JBG SMITH Properties (NYSE:JBGS), New Residential Investment Corp (NYSE:NRZ), Spirit AeroSystems Holdings, Inc. (NYSE:SPR), and Vivint Smart Home, Inc. (NYSE:VVNT). All of these stocks’ market caps are closest to PNM’s market cap.

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As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $1011 million in PNM’s case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand Vivint Smart Home, Inc. (NYSE:VVNT) is the least popular one with only 9 bullish hedge fund positions. PNM Resources, Inc. (NYSE:PNM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNM is 72.8. 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 positive signal but 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 beat the market again by 1.5 percentage points. Unfortunately PNM wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on PNM were disappointed as the stock returned 2.4% 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 many of these stocks already outperformed the market since 2019.

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

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