We recently compiled a list of the Top 10 Stock Picks of Elliott Management. In this article, we are going to take a look at where NRG Energy Inc. (NYSE:NRG) stands against Elliott Management’s other stock picks.
It was arguably one of the best years for hedge funds, going by the $67 billion returned to shareholders in 2023 as the overall equity markets shrugged off high interest rates to finish on a high. Elliott Management was one of the hedge funds that were up 4.7% for the year, slightly down from the 5.9% gain in 2022.
Founded in 1977, Elliott Management is one of the oldest and most successful hedge funds often tracked on Wall Street for investment opportunities. The hedge fund has only lost money in two years since its inception, affirming its impressive track record of focusing on underperforming and distressed companies.
Billionaire investor Paul Singer is the brainchild behind the highly diversified hedge fund that returned $5.5 billion to investors last year, taking its net gains since its inception to $47.6 billion. Additionally, the hedge fund manager boasts an average annual return of 14%, underscoring why he is one of the respected voices on Wall Street.
Elliott Management has two main funds, Elliott Associates L.P. and Elliott International Limited in which it leverages various strategies to generate value in the market. In the first quarter, Elliott Associates L.P generated a return of 2.5% and boasts of a 12-month return of 8.5% and two year compounded annual return of 5.5% on the other and Elliott International Limited was up by 2.4% in Q1 and 7.9% return in the past 12 months adding to compounded annual rate of return of 4.9%.
Since its inception, Elliott Management has invested in distressed securities. Initially, it operated as a hedge fund focusing on convertible arbitrage, but over time, it shifted its attention to investing in companies and, eventually, countries experiencing economic difficulties.
In the 1990s, it acquired distressed debt from nations like Peru and Argentina, which resulted in significant repayments of multi-million dollars. These strategies, which occasionally involved investments in corporate debt, led to Paul Singer being dubbed the “doomsday investor” by The New Yorker magazine in 2018.
More recently, in March 2021, amidst the turmoil in the nickel market following the conflict between Ukraine and Russia, the activist fund sought over $450 million in compensation from the London Metal Exchange for employing an illegal tactic aimed at disrupting trade.
Singer stands out from other hedge fund managers in his ability to identify high-risk reward opportunities and never shy away from taking risks. He accurately predicted the 2008 financial crisis and went on to benefit from it through aggressive investment strategies.
Likewise, Elliott Management showed no signs of slowing down in the first quarter of 2024. Singer and other investment managers have perfected the art of investing in underperforming companies and pursuing strategic changes to unlock optimum value.
Consequently, Elliot Management is one of the most revered activist hedge funds known to exert maximum pressure on companies it gets involved in to turn around their fortunes. In its activist campaigns, the hedge fund is known to push for management changes and board seats, all to influence strategic direction aimed at unlocking value. In aggressive situations, the firm can advocate for a spinoff of some assets or the sale of the entire business. Last year alone, the firm launched 15 activist campaigns.
Elliott Management boasts of one of the most diversified investment portfolios worth $16.12 billion. Nevertheless, the hedge fund is heavily invested in the Basic Materials sector, which accounts for 36.9% of its portfolio, with other best standing at 50.5%
The activist hedge fund has also been active in the capital markets, raising $8.5 billion in the first quarter after initially targeting $7 billion. The capital raise comes as it gears up for what it terms as a potential market downturn given the inexorable levitation” of the markets. The hedge fund has raised concerns over the premium valuations most equities and bonds enjoy that have come at the back of record interest rates.
The firm argues that the Federal Reserve lacks a deeper understanding of inflation and market fragility than the general public and that the presence of concentrated passive investors, elevated levels of government debt, and the possibility of currency depreciation all indicate a bubble situation.
Additionally, the hedge fund believes there are glimpses of bubbles in the market going to the frenzy triggered by the artificial intelligence revolution. Singer has warned of an ugly end to the Federal Reserve’s easy money policies for the longest time, insisting on trouble ahead due to high valuation and too much leverage.
Our Methodology
Elliott Management generated a gain of 12.6% in the first quarter underlines the effectiveness of its strategy of investing in companies with robust growth metrics and long-term prospects. After analyzing the 13F filing, we have settled on the top 10 holdings of Elliott Management. The stocks are ranked based on the hedge fund’s stake in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Close up image of an engineer inspecting the control panel of a modern power plant.
NRG Energy Inc. (NYSE:NRG)
Elliott Management’s Stake Value: $701.20 Million
Number of Hedge Fund Holders: 44
NRG Energy Inc. (NYSE:NRG) is an energy and home services company that produces and sells electricity generated using coal, oil, solar, and battery storage. It is turning out to be one of the best-performing stocks in Elliott Management’s portfolio, going by the 43% year-to-date gain. Elliott Management confirmed a 13% stake in NRG Energy Inc. (NYSE:NRG) worth $1 billion last year.
The impressive run comes a year after Elliott’s management launched an activist campaign posing for an overhaul of NRG Energy Inc. (NYSE:NRG)’s board. In addition, the hedge fund pushed for the unwinding of the security firm acquisition of Vivint Smart Home.
As of the end of the first quarter of 2024, 44 hedge funds tracked by the Insider Monkey database held stakes in NRG Energy Inc. (NYSE:NRG), an improvement from 31 as of 2023.
Overall NRG ranks 5th on our list of Elliott Management’s top 10 stock picks. You can visit Top 10 Stock Picks of Elliott Management to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of NRG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NRG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
