Was The Smart Money Right About NRG Energy Inc (NRG)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 873 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 30th, 2021. In this article we are going to take a look at smart money sentiment towards NRG Energy Inc (NYSE:NRG).

NRG Energy Inc (NYSE:NRG) has seen a decrease in hedge fund interest recently. NRG Energy Inc (NYSE:NRG) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistic is 50. There were 35 hedge funds in our database with NRG holdings at the end of March. Our calculations also showed that NRG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Michael Platt of BlueCrest Capital Mgmt.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, 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. Keeping this in mind let’s check out the new hedge fund action regarding NRG Energy Inc (NYSE:NRG).

Do Hedge Funds Think NRG Is A Good Stock To Buy Now?

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NRG over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the largest position in NRG Energy Inc (NYSE:NRG), worth close to $573.1 million, amounting to 2.2% of its total 13F portfolio. The second largest stake is held by Alex Duran and Scott Hendrickson of Permian Investment Partners, with a $306.6 million position; the fund has 31.7% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism encompass Robert Pitts’s Steadfast Capital Management, Michael Platt and William Reeves’s BlueCrest Capital Mgmt. and Andrew Wellington and Jeff Keswin’s Lyrical Asset Management. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to NRG Energy Inc (NYSE:NRG), around 31.73% of its 13F portfolio. Permian Investment Partners is also relatively very bullish on the stock, dishing out 8.73 percent of its 13F equity portfolio to NRG.

Since NRG Energy Inc (NYSE:NRG) has faced declining sentiment from hedge fund managers, we can see that there was a specific group of hedgies that elected to cut their entire stakes last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $43.1 million in stock. Martin D. Sass’s fund, MD Sass, also dumped its stock, about $31 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to NRG Energy Inc (NYSE:NRG). These stocks are MKS Instruments, Inc. (NASDAQ:MKSI), AGCO Corporation (NYSE:AGCO), Globe Life Inc. (NYSE:GL), Playtika Holding Corp. (NASDAQ:PLTK), Appian Corporation (NASDAQ:APPN), Sasol Limited (NYSE:SSL), and UGI Corp (NYSE:UGI). This group of stocks’ market caps resemble NRG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $476 million. That figure was $1905 million in NRG’s case. AGCO Corporation (NYSE:AGCO) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 5 bullish hedge fund positions. NRG Energy Inc (NYSE:NRG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NRG is 65.2. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately NRG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NRG were disappointed as the stock returned -8.5% since the end of June (through 11/5) 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 many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.