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This Metric Says You Are Smart to Buy Dynegy Inc. (DYN) – IDACORP Inc (IDA), Great Plains Energy Incorporated (GXP)

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Is Dynegy Inc. (NYSE:DYN) worth your attention right now? Hedge funds are becoming hopeful. The number of long hedge fund bets increased by 15 recently.

To most market participants, hedge funds are assumed to be worthless, old investment vehicles of the past. While there are more than 8000 funds trading today, we choose to focus on the leaders of this club, around 450 funds. It is widely believed that this group controls the lion’s share of the smart money’s total asset base, and by monitoring their top investments, we have unearthed a few investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).

Dynegy Inc. (NYSE:DYN)

Equally as key, positive insider trading activity is another way to break down the stock market universe. There are lots of stimuli for an executive to get rid of shares of his or her company, but only one, very clear reason why they would buy. Many academic studies have demonstrated the valuable potential of this method if piggybackers understand what to do (learn more here).

Keeping this in mind, we’re going to take a look at the recent action surrounding Dynegy Inc. (NYSE:DYN).

How are hedge funds trading Dynegy Inc. (NYSE:DYN)?

In preparation for this year, a total of 16 of the hedge funds we track were long in this stock, a change of 1500% from the third quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably.

When looking at the hedgies we track, Howard Marks’s Oaktree Capital Management had the biggest position in Dynegy Inc. (NYSE:DYN), worth close to $138.2 million, comprising 2.5% of its total 13F portfolio. The second largest stake is held by Marc Lasry of Avenue Capital, with a $85.7 million position; the fund has 16.7% of its 13F portfolio invested in the stock. Other hedge funds that are bullish include Nick Niell’s Arrowgrass Capital Partners, Don Morgan’s Brigade Capital and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

As aggregate interest increased, key money managers have jumped into Dynegy Inc. (NYSE:DYN) headfirst. Oaktree Capital Management, managed by Howard Marks, created the largest position in Dynegy Inc. (NYSE:DYN). Oaktree Capital Management had 138.2 million invested in the company at the end of the quarter. Marc Lasry’s Avenue Capital also initiated a $85.7 million position during the quarter. The following funds were also among the new DYN investors: Nick Niell’s Arrowgrass Capital Partners, Don Morgan’s Brigade Capital, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

How are insiders trading Dynegy Inc. (NYSE:DYN)?

Bullish insider trading is at its handiest when the primary stock in question has seen transactions within the past half-year. Over the latest half-year time period, Dynegy Inc. (NYSE:DYN) has experienced 3 unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Dynegy Inc. (NYSE:DYN). These stocks are Portland General Electric Company (NYSE:POR), IDACORP Inc (NYSE:IDA), Great Plains Energy Incorporated (NYSE:GXP), Hawaiian Electric Industries, Inc. (NYSE:HE), and Cleco Corporation (NYSE:CNL). This group of stocks are the members of the electric utilities industry and their market caps are closest to DYN’s market cap.

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