Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Sempra Energy (NYSE:SRE) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Sempra Energy (NYSE:SRE) has experienced an increase in hedge fund sentiment in recent months. Our calculations also showed that SRE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the recent hedge fund action encompassing Sempra Energy (NYSE:SRE).
What have hedge funds been doing with Sempra Energy (NYSE:SRE)?
At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in SRE a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Sempra Energy (NYSE:SRE) was held by Adage Capital Management, which reported holding $204.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $138.5 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Carlson Capital. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to Sempra Energy (NYSE:SRE), around 3.26% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, setting aside 1.52 percent of its 13F equity portfolio to SRE.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, established the biggest position in Sempra Energy (NYSE:SRE). D E Shaw had $13.9 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $10.2 million position during the quarter. The other funds with brand new SRE positions are Sara Nainzadeh’s Centenus Global Management, Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital, and Israel Englander’s Millennium Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sempra Energy (NYSE:SRE) but similarly valued. We will take a look at Baxter International Inc. (NYSE:BAX), Lam Research Corporation (NASDAQ:LRCX), The Progressive Corporation (NYSE:PGR), and BCE Inc. (NYSE:BCE). This group of stocks’ market caps are closest to SRE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BAX | 47 | 3519863 | 8 |
| LRCX | 52 | 2625592 | 0 |
| PGR | 48 | 1782118 | -5 |
| BCE | 19 | 219572 | 5 |
| Average | 41.5 | 2036786 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $2037 million. That figure was $717 million in SRE’s case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 19 bullish hedge fund positions. Sempra Energy (NYSE:SRE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately SRE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SRE investors were disappointed as the stock returned -20% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
