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Did Hedge Funds Drop The Ball On Quanta Services Inc (PWR) ?

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is Quanta Services Inc (NYSE:PWR) an outstanding stock to buy now? Investors who are in the know are getting less optimistic. The number of long hedge fund positions decreased by 7 recently. Our calculations also showed that PWR isn’t among the 30 most popular stocks among hedge funds. PWR was in 27 hedge funds’ portfolios at the end of December. There were 34 hedge funds in our database with PWR holdings at the end of the previous quarter.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Arnaud Ajdler Engine Capital

We’re going to review the key hedge fund action regarding Quanta Services Inc (NYSE:PWR).

Hedge fund activity in Quanta Services Inc (NYSE:PWR)

At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the second quarter of 2018. By comparison, 33 hedge funds held shares or bullish call options in PWR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

PWR_apr2019

When looking at the institutional investors followed by Insider Monkey, William Harnisch’s Peconic Partners LLC has the most valuable position in Quanta Services Inc (NYSE:PWR), worth close to $111.1 million, accounting for 27.2% of its total 13F portfolio. Coming in second is Millennium Management, managed by Israel Englander, which holds a $89.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include Edgar Wachenheim’s Greenhaven Associates, D. E. Shaw’s D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors.

Because Quanta Services Inc (NYSE:PWR) has faced declining sentiment from hedge fund managers, we can see that there exists a select few money managers that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group dumped the largest stake of all the hedgies watched by Insider Monkey, valued at an estimated $11.3 million in stock, and Robert Polak’s Anchor Bolt Capital was right behind this move, as the fund dumped about $10.2 million worth. These transactions are important to note, as total hedge fund interest fell by 7 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Quanta Services Inc (NYSE:PWR). These stocks are Amarin Corporation plc (NASDAQ:AMRN), Cree, Inc. (NASDAQ:CREE), Empire State Realty Trust Inc (NYSE:ESRT), and Knight-Swift Transportation Holdings Inc. (NYSE:KNX). This group of stocks’ market caps are closest to PWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMRN 24 1242883 2
CREE 9 226703 -4
ESRT 13 160283 0
KNX 26 299335 -5
Average 18 482301 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $482 million. That figure was $477 million in PWR’s case. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the most popular stock in this table. On the other hand Cree, Inc. (NASDAQ:CREE) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Quanta Services Inc (NYSE:PWR) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on PWR as the stock returned 32.4% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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