Did Hedge Funds Make The Right Call On Peabody Energy Corporation (BTU) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Peabody Energy Corporation (NYSE:BTU) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Peabody Energy Corporation (NYSE:BTU) has experienced a decrease in hedge fund interest of late. Our calculations also showed that BTU 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.

In the eyes of most market participants, hedge funds are seen as worthless, old investment vehicles of the past. While there are more than 8000 funds in operation at present, Our experts look at the masters of this club, about 850 funds. Most estimates calculate that this group of people shepherd the lion’s share of all hedge funds’ total asset base, and by tailing their finest investments, Insider Monkey has brought to light a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year 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 .

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a gander at the key hedge fund action encompassing Peabody Energy Corporation (NYSE:BTU).

How are hedge funds trading Peabody Energy Corporation (NYSE:BTU)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position 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.

Is BTU A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Paul Singer’s Elliott Management has the number one position in Peabody Energy Corporation (NYSE:BTU), worth close to $83.9 million, corresponding to 1.6% of its total 13F portfolio. The second largest stake is held by Platinum Asset Management, led by Kerr Neilson, holding a $11.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers that hold long positions contain Renaissance Technologies, Jeremy Hosking’s Hosking Partners and Jon Bauer’s Contrarian Capital. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 1.84% of its 13F portfolio. Elliott Management is also relatively very bullish on the stock, designating 1.55 percent of its 13F equity portfolio to BTU.

Because Peabody Energy Corporation (NYSE:BTU) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there were a few hedge funds that decided to sell off their full holdings in the first quarter. Intriguingly, Adam Peterson’s Magnolia Capital Fund sold off the biggest position of the 750 funds watched by Insider Monkey, worth an estimated $2.7 million in stock. Randall Smith’s fund, Alden Global Capital, also said goodbye to its stock, about $1.9 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Peabody Energy Corporation (NYSE:BTU). These stocks are Cambridge Bancorp (NASDAQ:CATC), Summit Financial Group, Inc. (NASDAQ:SMMF), Lannett Company, Inc. (NYSE:LCI), and Fulcrum Therapeutics, Inc. (NASDAQ:FULC). All of these stocks’ market caps resemble BTU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CATC 9 15932 2
SMMF 2 6045 -1
LCI 8 31303 -3
FULC 6 36215 -2
Average 6.25 22374 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $129 million in BTU’s case. Cambridge Bancorp (NASDAQ:CATC) is the most popular stock in this table. On the other hand Summit Financial Group, Inc. (NASDAQ:SMMF) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately BTU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -0.7% during the second quarter 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 in 2020.

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