Is SO Stock A Buy or Sell?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of The Southern Company (NYSE:SO).

Is SO stock a buy? The best stock pickers were becoming hopeful. The number of bullish hedge fund bets inched up by 7 lately. The Southern Company (NYSE:SO) was in 32 hedge funds’ portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that SO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. 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. Keeping this in mind we’re going to go over the new hedge fund action surrounding The Southern Company (NYSE:SO).

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

At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SO over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Adage Capital Management held the most valuable stake in The Southern Company (NYSE:SO), which was worth $72.3 million at the end of the fourth quarter. On the second spot was Two Sigma Advisors which amassed $56.3 million worth of shares. Citadel Investment Group, D E Shaw, and D E Shaw 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 Jones Road Capital Management allocated the biggest weight to The Southern Company (NYSE:SO), around 1.48% of its 13F portfolio. Te Ahumairangi Investment Management is also relatively very bullish on the stock, dishing out 1.45 percent of its 13F equity portfolio to SO.

Now, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the biggest position in The Southern Company (NYSE:SO). Adage Capital Management had $72.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $43.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Nicholas Bagnall’s Te Ahumairangi Investment Management, and Aaron Wertentheil’s Jones Road Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Southern Company (NYSE:SO) but similarly valued. These stocks are Enbridge Inc (NYSE:ENB), Intercontinental Exchange Inc (NYSE:ICE), Truist Financial Corporation (NYSE:TFC), Illinois Tool Works Inc. (NYSE:ITW), Global Payments Inc (NYSE:GPN), Equinix Inc (NASDAQ:EQIX), and PNC Financial Services Group Inc. (NYSE:PNC). This group of stocks’ market valuations resemble SO’s market valuation.

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As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $1776 million. That figure was $400 million in SO’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 28 bullish hedge fund positions. The Southern Company (NYSE:SO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SO is 42.7. 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 negative signal and 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 surpassed the market again by 1.5 percentage points. Unfortunately SO wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); SO investors were disappointed as the stock returned 3.5% 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 most of these stocks already outperformed the market in 2020.

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

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