Were Hedge Funds Right About PG&E Corporation (PCG)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about PG&E Corporation (NYSE:PCG).

Is PG&E Corporation (NYSE:PCG) going to take off soon? Hedge funds were getting less optimistic. The number of bullish hedge fund positions were cut by 1 in recent months. PG&E Corporation (NYSE:PCG) was in 65 hedge funds’ portfolios at the end of the first 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 Q1 rankings). There were 66 hedge funds in our database with PCG positions at the end of the fourth quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Dan Loeb of Third Point

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. Now let’s take a glance at the recent hedge fund action surrounding PG&E Corporation (NYSE:PCG).

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

At Q1’s end, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PCG over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Third Point held the most valuable stake in PG&E Corporation (NYSE:PCG), which was worth $971.2 million at the end of the fourth quarter. On the second spot was Zimmer Partners which amassed $549 million worth of shares. Baupost Group, Silver Point Capital, and Appaloosa Management LP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Silver Point Capital allocated the biggest weight to PG&E Corporation (NYSE:PCG), around 36.04% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, designating 25.02 percent of its 13F equity portfolio to PCG.

Since PG&E Corporation (NYSE:PCG) has witnessed a decline in interest from the smart money, we can see that there exists a select few hedgies who sold off their entire stakes by the end of the first quarter. Interestingly, Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors cut the biggest investment of the 750 funds followed by Insider Monkey, worth close to $322.5 million in stock, and Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors was right behind this move, as the fund dumped about $85.2 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s now take a look at 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 Arista Networks Inc (NYSE:ANET), Yandex NV (NASDAQ:YNDX), Li Auto Inc. (NASDAQ:LI), United Microelectronics Corp (NYSE:UMC), ONEOK, Inc. (NYSE:OKE), Baker Hughes Company (NYSE:BKR), and Verisign, Inc. (NASDAQ:VRSN). This group of stocks’ market caps resemble PCG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $1265 million. That figure was $5665 million in PCG’s case. Baker Hughes Company (NYSE:BKR) is the most popular stock in this table. On the other hand United Microelectronics Corp (NYSE:UMC) is the least popular one with only 11 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 75.2. 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. 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 25.8% in 2021 through August 6th and still beat the market by 6.7 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 -27.2% since the end of the first quarter (through 8/6) 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.