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2019 Review: Top Hedge Fund Stocks vs. Peabody Energy Corporation (BTU)

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Peabody Energy Corporation (NYSE:BTU) and see how the stock performed in comparison to hedge funds’ consensus picks.

Hedge fund interest in Peabody Energy Corporation (NYSE:BTU) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as SFL Corporation Ltd. (NYSE:SFL), Groupon Inc (NASDAQ:GRPN), and Change Healthcare Inc. (NASDAQ:CHNG) to gather more data points. Our calculations also showed that BTU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the 21st century investor’s toolkit there are plenty of formulas investors can use to value their holdings. A couple of the less utilized formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outperform the market by a significant amount (see the details here).

Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to go over the new hedge fund action encompassing Peabody Energy Corporation (NYSE:BTU).

Hedge fund activity in Peabody Energy Corporation (NYSE:BTU)

Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in BTU a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Peabody Energy Corporation (NYSE:BTU) was held by Elliott Management, which reported holding $425.6 million worth of stock at the end of September. It was followed by Contrarian Capital with a $120.4 million position. Other investors bullish on the company included Renaissance Technologies, Platinum Asset Management, and Mangrove Partners. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 10.98% of its 13F portfolio. Venor Capital Management is also relatively very bullish on the stock, dishing out 3.6 percent of its 13F equity portfolio to BTU.

Due to the fact that Peabody Energy Corporation (NYSE:BTU) has experienced bearish sentiment from the smart money, logic holds that there were a few funds who were dropping their entire stakes heading into Q4. Intriguingly, Ken Griffin’s Citadel Investment Group dropped the biggest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $6.4 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also cut its stock, about $3.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Peabody Energy Corporation (NYSE:BTU). We will take a look at SFL Corporation Ltd. (NYSE:SFL), Groupon Inc (NASDAQ:GRPN), Change Healthcare Inc. (NASDAQ:CHNG), and Granite Construction Incorporated (NYSE:GVA). This group of stocks’ market values are similar to BTU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFL 12 61459 1
GRPN 21 274180 -3
CHNG 22 255472 -7
GVA 11 38136 0
Average 16.5 157312 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $725 million in BTU’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Granite Construction Incorporated (NYSE:GVA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BTU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -67.6% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
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.

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