Did Hedge Funds Make The Right Call On Atmos Energy Corporation (ATO) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Atmos Energy Corporation (NYSE:ATO) and determine whether hedge funds had an edge regarding this stock.

Is Atmos Energy Corporation (NYSE:ATO) a safe investment today? Prominent investors were in a pessimistic mood. The number of bullish hedge fund bets decreased by 5 in recent months. Our calculations also showed that ATO 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). ATO was in 21 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with ATO holdings at the end of the previous quarter.

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

If you’d ask most investors, hedge funds are assumed to be worthless, old investment vehicles of yesteryear. While there are over 8000 funds in operation at present, We choose to focus on the leaders of this group, about 850 funds. Most estimates calculate that this group of people control most of all hedge funds’ total capital, and by following their top investments, Insider Monkey has unsheathed a few investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a look at the new hedge fund action surrounding Atmos Energy Corporation (NYSE:ATO).

What does smart money think about Atmos Energy Corporation (NYSE:ATO)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in ATO a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Atmos Energy Corporation (NYSE:ATO) was held by AQR Capital Management, which reported holding $74 million worth of stock at the end of September. It was followed by Adage Capital Management with a $43.1 million position. Other investors bullish on the company included Millennium Management, Carlson Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Quantamental Technologies allocated the biggest weight to Atmos Energy Corporation (NYSE:ATO), around 0.49% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, earmarking 0.42 percent of its 13F equity portfolio to ATO.

Seeing as Atmos Energy Corporation (NYSE:ATO) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that decided to sell off their full holdings in the first quarter. Interestingly, Jonathan Barrett and Paul Segal’s Luminus Management said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $24 million in stock, and Greg Poole’s Echo Street Capital Management was right behind this move, as the fund cut about $13.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Atmos Energy Corporation (NYSE:ATO). These stocks are Dover Corporation (NYSE:DOV), Healthpeak Properties, Inc. (NYSE:PEAK), Restaurant Brands International Inc (NYSE:QSR), and Lennar Corporation (NYSE:LEN). This group of stocks’ market caps are closest to ATO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOV 31 644941 2
PEAK 26 292181 0
QSR 41 2250209 -11
LEN 57 1121019 -6
Average 38.75 1077088 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1077 million. That figure was $209 million in ATO’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Healthpeak Properties, Inc. (NYSE:PEAK) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Atmos Energy Corporation (NYSE:ATO) is even less popular than PEAK. Hedge funds dodged a bullet by taking a bearish stance towards ATO. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. Unfortunately ATO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ATO investors were disappointed as the stock returned 4% since Q1 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 so far in 2020.

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