In this article we are going to use hedge fund sentiment as a tool and determine whether PG&E Corporation (NYSE:PCG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is PG&E Corporation (NYSE:PCG) the right pick for your portfolio? The smart money was cutting their exposure. The number of long hedge fund bets were trimmed by 1 lately. PG&E Corporation (NYSE:PCG) was in 64 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 92. Our calculations also showed that PCG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Seth Klarman of Baupost Group
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a look at the recent hedge fund action regarding PG&E Corporation (NYSE:PCG).
Do Hedge Funds Think PCG Is A Good Stock To Buy Now?
At second quarter’s end, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. By comparison, 92 hedge funds held shares or bullish call options in PCG a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Dan Loeb’s Third Point has the most valuable position in PG&E Corporation (NYSE:PCG), worth close to $833.3 million, accounting for 4.9% of its total 13F portfolio. The second most bullish fund manager is Zimmer Partners, led by Stuart J. Zimmer, holding a $471 million position; the fund has 6.3% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Seth Klarman’s Baupost Group, Howard Marks’s Oaktree Capital Management and Edward A. Mule’s Silver Point Capital. In terms of the portfolio weights assigned to each position Silver Point Capital allocated the biggest weight to PG&E Corporation (NYSE:PCG), around 15.45% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, dishing out 10.53 percent of its 13F equity portfolio to PCG.
Seeing as PG&E Corporation (NYSE:PCG) has witnessed a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of funds that slashed their positions entirely by the end of the second quarter. It’s worth mentioning that Stephen C. Freidheim’s Cyrus Capital Partners dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising close to $102.5 million in stock, and Peter S. Park’s Park West Asset Management was right behind this move, as the fund dropped about $23.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PG&E Corporation (NYSE:PCG) but similarly valued. We will take a look at SK Telecom Co., Ltd. (NYSE:SKM), Seagate Technology plc (NASDAQ:STX), KeyCorp (NYSE:KEY), Entergy Corporation (NYSE:ETR), L Brands Inc (NYSE:LB), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Lyft, Inc. (NASDAQ:LYFT). This group of stocks’ market caps match PCG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SKM | 8 | 68342 | 0 |
| STX | 31 | 1919802 | 4 |
| KEY | 40 | 443140 | -1 |
| ETR | 31 | 595450 | 0 |
| LB | 53 | 6315005 | -6 |
| ALNY | 33 | 1022981 | 0 |
| LYFT | 43 | 1385923 | -17 |
| Average | 34.1 | 1678663 | -2.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $1679 million. That figure was $4664 million in PCG’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks PG&E Corporation (NYSE:PCG) is more popular among hedge funds. Our overall hedge fund sentiment score for PCG is 74.9. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Unfortunately PCG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PCG were disappointed as the stock returned -2% since the end of the second quarter (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
