Luminus Management Trying to Light the Way to Big Returns With These Utilities Stocks

Luminus Management is a long/short hedge fund that focuses mainly on power and utility stocks. Established in 2002, the fund is currently run by Jonathan Barrett and Paul Segal, who have extensive knowledge of the utilities sector. The fund had approximately $5.28 billion in assets under management at the end of the first quarter, while its equity portfolio carried a market value of $3.02 billion. Utilities and telecommunication stocks accounted for 37% of the value of its equity portfolio, while 21% was represented by stocks from the materials sector. At the end of the December quarter, utilities stocks accounted for 50% of the fund’s portfolio, so Messrs. Segal and Barrett have shaken things up a bit. Let’s take a look at the fund’s five largest positions in utilities stocks and see how they were changed over the course of the first quarter.

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5. CenterPoint Energy, Inc. (NYSE:CNP)

Opening our top five is CenterPoint Energy, Inc. (NYSE:CNP), an energy delivery company based in Houston, Texas. According to its latest 13F filing, Luminus Management held 2.09 million shares of CenterPoint Energy valued at $43.8 million on March 31, with the share ownership down by 38% quarter-over-quarter. Overall hedge fund sentiment towards CenterPoint Energy improved significantly during the first three months of this year, as the number of long positions in the stock reported by funds in our database rose to 27 from 22. Billionaire Paul Singer was among those bullish on the stock, having boosted his fund’s stake in it by 52% to 13.5 million shares worth $283 million. The stock has been on a solid run, boosted by excellent financial results. For the first three months of 2016, CenterPoint Energy, Inc. (NYSE:CNP) posted a profit of $154 million or $0.36 per share, above analysts’ consensus estimate of $0.31 per share. Revenue came in at $1.98 billion, down by 18% year-over-year as mild winter weather had a negative impact on the demand for energy.

4. Duke Energy Corp (NYSE:DUK)

Duke Energy Corp (NYSE:DUK) was also on Luminus Management’s selling list, with the fund having dumped 71% of its holding. At the end of the quarter, Luminus held 798,523 shares of company, which had been its second-largest holding on December 31. The slashed position was worth approximately $64.4 million on March 31. According to our data, the number of elite hedge funds invested in Duke Energy rose to 20 by the end of March, from 14 registered a quarter earlier. Duke Energy Corp (NYSE:DUK) is currently trading at a trailing Price to Earnings (P/E) ratio of 20, higher than the industry average of 14 according to Yahoo! Finance. The company has a market cap of $54 billion and pays an annual dividend of $3.30 per share, providing investors with a 4.20% annual dividend yield. Investment legend Stanley Druckenmiller had a completely different opinion on Duke Energy in the first quarter, as his family office Duquesne Capital established a fresh position that amounted to 649,100 shares.

Turn the page to find out the three utility companies that Messrs. Barrett and Segal like best.

3. Dominion Resources, Inc. (NYSE:D)

Dominion Resources, Inc. (NYSE:D) is one of the utility stocks Luminus is optimistic about, having increased its investment in it by 18% during the quarter. Luminus Management held a little over 1.2 million shares at the end of March, a position valued at $90.6 million. The company released its first quarter earnings on May 4, which met analysts’ expectations. Dominion Resources, Inc. (NYSE:D) posted $2.92 billion in revenue, down by 15% year-over-year, and a profit of $0.96 per share when adjusted for non-recurring costs. The company recently took another step in its bid to become more eco-friendly, firing up its brand new Brunswick Power Station on April 26, which uses natural gas and energy efficient technology to produce electricity. The station can produce enough electricity to power up to 325,000 homes and is expected to generate fuel savings of roughly $100 million in the first year of use. Jim Simons‘ quantitative models have also issued a bullish signal on Dominion Resources, as his fund Renaissance Technologies upped its stake in the company by 60% during the first quarter. Valued at $124 million, the fund’s position amounted to 1.65 million shares and was the largest among the funds followed by Insider Monkey.

2. FirstEnergy Corp. (NYSE:FE)

The popularity of FirstEnergy Corp. (NYSE:FE) among the funds tracked by Insider Monkey inched up during the first quarter, as the number of long positions reported by elite funds rose by one to 27. Cliff Asness was buying FirstEnergy shares left and right, boosting his fund’s investment by 359% over the course of the first quarter. AQR Capital Management reportedly held 3.93 million shares of FirstEnergy valued at $141 million. Messrs. Barrett and Segal reduced their stake in the company by 22% during the quarter, but still held 5.91 million shares worth $212 million. By the end of April, FirstEnergy Corp. (NYSE:FE) was up by 14% and trading around the $36 level, only to fall 10% on April 28 after the Federal Energy Regulatory Commission blocked income guarantees the company had previously received from Ohio’s public utilities commission. The controversial agreement had guaranteed income for some of FirstEnergy’s aging power plants. Analysts at RBC Capital Markets reacted to the news by downgrading the stock to ‘Sector Perform’ from ‘Outperform’, while lowering their price target on it to $33 per share.

1. PG&E Corporation (NYSE:PCG)

Luminus’ number one bet heading into the second quarter was in PG&E Corporation (NYSE:PCG), a company in which the fund first established a position in back in 2010. Their fund’s stake in the company was increased by 16% during the first quarter, reaching 3.94 million shares valued at $235 million. PG&E Corporation (NYSE:PCG) is well-liked among other top hedge funds as well, with the stock being found in the portfolios of 26 of them at the end of the first quarter, compared to just 19 at the end of December. Based in San Francisco, California, PG&E Corporation (NYSE:PCG) has a market cap of $30 billion and pays an annual dividend of $1.82 per share, which equates to an annual yield of 3%. The stock’s movement since the beginning of 2016 resembles a montagne russe, yet it has still managed to climb 14% to $60.20 per share. Israel Englander’s Millennium Management also holds a sizable position in this stock amounting to 5.39 million shares, up by 41% for the quarter.

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