Nextera Energy Partners LP (NEP): Are Hedge Funds Right About This Stock?

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a fool proof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong some times, as in the case of some of their top picks from the index like Micron and Anadarko. The data though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Is Nextera Energy Partners LP (NYSE:NEP) undervalued? Prominent investors are getting more optimistic. The number of long hedge fund bets advanced by 1 in recent months. At the end of this article we will also compare NEP to other stocks including Bridge Bancorp, Inc. (NASDAQ:BDGE), Triple-S Management Corp.(NYSE:GTS), and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) to get a better sense of its popularity.

If you’d ask most shareholders, hedge funds are perceived as worthless, old financial vehicles of years past. While there are more than an 8000 funds trading today, We hone in on the masters of this group, about 700 funds. Most estimates calculate that this group of people shepherd bulk of the smart money’s total asset base, and by keeping track of their unrivaled picks, Insider Monkey has discovered a few investment strategies that have historically outrun the market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, we’re going to take a look at the fresh action surrounding Nextera Energy Partners LP (NYSE:NEP).

How have hedgies been trading Nextera Energy Partners LP (NYSE:NEP)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the second quarter. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Pitts’s Steadfast Capital Management has the largest position in Nextera Energy Partners LP (NYSE:NEP), worth close to $33.1 million, corresponding to 0.7% of its total 13F portfolio. On Steadfast Capital Management’s heels is Zimmer Partners, managed by Stuart J. Zimmer, which holds a $20.2 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism encompass Israel Englander’s Millennium Management, Dmitry Balyasny’s Balyasny Asset Management and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Consequently, some big names have been driving this bullishness. OZ Management, managed by Daniel S. Och, initiated the most outsized position in Nextera Energy Partners LP (NYSE:NEP). OZ Management had $6.3 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Tudor Jones’s Tudor Investment Corp, and Chao Ku’s Nine Chapters Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Nextera Energy Partners LP (NYSE:NEP) but similarly valued. We will take a look at Bridge Bancorp, Inc. (NASDAQ:BDGE), Triple-S Management Corp.(NYSE:GTS), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Incontact Inc (NASDAQ:SAAS). This group of stocks’ market valuations are similar to NEP’s market valuation.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $61 million, compared to $103 million in NEP’s case. Triple-S Management Corp. (NYSE:GTS) is the most popular stock in this table. On the other hand Bridge Bancorp, Inc. (NASDAQ:BDGE) is the least popular one with only 8 bullish hedge fund positions. Nextera Energy Partners LP (NYSE:NEP) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GTS might be a better candidate to consider a long position.