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Did Hedge Funds Make The Right Call On Quanta Services Inc (PWR) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Quanta Services Inc (NYSE:PWR) and determine whether the smart money was really smart about this stock.

Is Quanta Services Inc (NYSE:PWR) a buy here? Hedge funds were getting less optimistic. The number of bullish hedge fund bets went down by 16 lately. Our calculations also showed that PWR 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Harnisch

William Harnisch of Peconic Partners LLC

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the key hedge fund action regarding Quanta Services Inc (NYSE:PWR).

How are hedge funds trading Quanta Services Inc (NYSE:PWR)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in PWR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Southport Management held the most valuable stake in Quanta Services Inc (NYSE:PWR), which was worth $951.9 million at the end of the third quarter. On the second spot was Peconic Partners LLC which amassed $172.7 million worth of shares. Lyrical Asset Management, AQR Capital Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Peconic Partners LLC allocated the biggest weight to Quanta Services Inc (NYSE:PWR), around 66.77% of its 13F portfolio. Brightlight Capital is also relatively very bullish on the stock, earmarking 11.73 percent of its 13F equity portfolio to PWR.

Seeing as Quanta Services Inc (NYSE:PWR) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their entire stakes heading into Q4. Interestingly, Louis Bacon’s Moore Global Investments dumped the biggest investment of all the hedgies followed by Insider Monkey, valued at an estimated $7.7 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund sold off about $5.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 16 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Quanta Services Inc (NYSE:PWR) but similarly valued. We will take a look at Etsy Inc (NASDAQ:ETSY), XPO Logistics Inc (NYSE:XPO), FTI Consulting, Inc. (NYSE:FCN), and Santander Consumer USA Holdings Inc (NYSE:SC). This group of stocks’ market valuations resemble PWR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETSY 38 712742 -8
XPO 36 1719666 4
FCN 19 175190 -2
SC 20 423643 -7
Average 28.25 757810 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $758 million. That figure was $1509 million in PWR’s case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand FTI Consulting, Inc. (NYSE:FCN) is the least popular one with only 19 bullish hedge fund positions. Quanta Services Inc (NYSE:PWR) is not the least popular stock in this group but hedge fund interest is still below average. 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 but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on PWR, though not to the same extent, as the stock returned 24% during the second quarter and outperformed the market.

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