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CenterPoint Energy, Inc. (CNP): Are Hedge Funds Right About This Stock?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of CenterPoint Energy, Inc. (NYSE:CNP) based on that data.

Is CenterPoint Energy, Inc. (NYSE:CNP) a healthy stock for your portfolio? The smart money is in an optimistic mood. The number of long hedge fund bets inched up by 2 in recent months. Our calculations also showed that CNP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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. 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 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the key hedge fund action regarding CenterPoint Energy, Inc. (NYSE:CNP).

Hedge fund activity in CenterPoint Energy, Inc. (NYSE:CNP)

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the fourth quarter of 2019. By comparison, 34 hedge funds held shares or bullish call options in CNP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the largest position in CenterPoint Energy, Inc. (NYSE:CNP). Citadel Investment Group has a $166.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $118.7 million position; 0.1% of its 13F portfolio is allocated to the company. Other peers that hold long positions include John Murphy’s Levin Easterly Partners, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Levin Easterly Partners allocated the biggest weight to CenterPoint Energy, Inc. (NYSE:CNP), around 4.89% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, earmarking 4.66 percent of its 13F equity portfolio to CNP.

Consequently, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in CenterPoint Energy, Inc. (NYSE:CNP). Arrowstreet Capital had $6.9 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, D. E. Shaw’s D E Shaw, and Sander Gerber’s Hudson Bay Capital Management.

Let’s also examine hedge fund activity in other stocks similar to CenterPoint Energy, Inc. (NYSE:CNP). We will take a look at Nordson Corporation (NASDAQ:NDSN), Erie Indemnity Company (NASDAQ:ERIE), Apollo Global Management Inc (NYSE:APO), and Globe Life Inc. (NYSE:GL). All of these stocks’ market caps resemble CNP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NDSN 22 98925 -7
ERIE 17 63002 -3
APO 34 1487468 5
GL 22 574230 -1
Average 23.75 555906 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $561 million in CNP’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 17 bullish hedge fund positions. CenterPoint Energy, Inc. (NYSE:CNP) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately CNP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNP were disappointed as the stock returned 16.1% 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 many of these stocks already outperformed the market so far this year.

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