Kinder Morgan Inc (NYSE:KMI) and its shareholders are enduring another rough day, as shares of the energy infrastructure giant are down by another 6.75% this morning, pushing its losses this week to 25%. Moody’s downgraded the company’s debt rating to ‘Negative’ from ‘Neutral’ on Tuesday, after KMI announced that it was upping its stake in struggling Natural Gas Pipeline Company of America, which it operates, to 50% from 20%. Kinder Morgan was also hit with the news that it will be on the hook for $171 million in damages owed to investors of an MLP affiliate of El Paso Corp, the latter of which KMI acquired in 2014. That results from a ruling that found El Paso overcharged the MLP (and by extension its investors) when it sold two subsidiaries to it in 2011.
Those developments earlier in the week led to Argus also downgrading Kinder Morgan to ‘Hold’ from ‘Buy’ yesterday, with the research firm raising concerns about KMI’s dividend, among other things, suggesting liquidity concerns will likely lead to the dividend being cut in the future. Kinder Morgan’s most recent dividend was a $0.51 quarterly payment on October 29, which now represents a dividend yield of over 11% at the stock’s depressed levels. Kinder Morgan’s dividend yield stood at less than 5% a year ago, before the stock cratered by 57%.
Despite the challenging environment for Kinder Morgan, investors tracked by Insider Monkey were showing optimism for the stock at its reduced third quarter price. Kinder Morgan was in 72 hedge funds’ portfolios at the end of September. That was up from 64 hedge funds in our database with Kinder Morgan holdings at the end of June. At the end of this article we will also compare Kinder Morgan to companies such as Abbott Laboratories (NYSE:ABT), ConocoPhillips (NYSE:COP), and Danaher Corporation (NYSE:DHR) to see how investors are also trading similar-sized companies.
Follow Kinder Morgan Inc. (NYSE:KMI)
Follow Kinder Morgan Inc. (NYSE:KMI)
Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by over 53 percentage points (read more details here).
Keeping this in mind, we’re going to analyze the latest hedge fund activity in Kinder Morgan Inc (NYSE:KMI).
What have hedge funds been doing with Kinder Morgan Inc (NYSE:KMI)?
Heading into Q4, a total of 72 of the hedge funds tracked by Insider Monkey were long KMI, a 13% increase from one quarter earlier. When looking at the institutional investors followed by Insider Monkey, Eric W. Mandelblatt’s Soroban Capital Partners has the biggest position in Kinder Morgan Inc (NYSE:KMI), worth close to $955 million in shares underlying call options. The second-largest stake is held by Bob Peck and Andy Raab of FPR Partners, with a $165.6 million long position; the fund also has a $124.8 million position of shares underlying call options. Some other peers that hold long positions include the quant funds D E Shaw and Renaissance Technologies.
Among the top investors opening new positions was Brookside Capital, managed by Bain Capital, which had $45.7 million invested in the company at the end of the third quarter. Jody LaNasa and Vivian Lau’s Serengeti Asset Management also initiated a $16.6 million position during the quarter. Other funds with new positions in the stock include Jorge Paulo Lemann’s 3G Capital, Bruce Kovner’s Caxton Associates LP, and Frank Brosens’ Taconic Capital.
As mentioned, we’ll also examine hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). These stocks are Abbott Laboratories (NYSE:ABT), ConocoPhillips (NYSE:COP), Danaher Corporation (NYSE:DHR), and Colgate-Palmolive Company (NYSE:CL). This group of stocks’ market valuations are closest to Kinder Morgan’s.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABT | 55 | 2077991 | 6 |
| COP | 44 | 1237571 | 1 |
| DHR | 53 | 1976453 | 0 |
| CL | 31 | 1803185 | -4 |
As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $1.77 billion. That figure was $1.83 billion in Kinder Morgan’s case. Abbott Laboratories (NYSE:ABT) is the most popular stock in this table with 55 investors tracked by Insider Monkey having long positions in it. On the other hand Colgate-Palmolive Company (NYSE:CL) is the least popular one with only 31 long positions. Compared to these stocks, Kinder Morgan Inc (NYSE:KMI) is more popular among hedge funds and has an above-average amount of money invested in it.
Considering that hedge funds are quite fond of this stock in relation to its market cap peers, the big drop this week could provide a golden opportunity for investors to go long, with the understanding that it could be years before Kinder Morgan’s situation materially improves.
Disclosure: None
