Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of American Electric Power Company, Inc. (NASDAQ:AEP) based on that data.
Hedge fund interest in American Electric Power Company, Inc. (NASDAQ:AEP) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AEP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as National Grid plc (NYSE:NGG), Roku, Inc. (NASDAQ:ROKU), and IDEXX Laboratories, Inc. (NASDAQ:IDXX) to gather more data points.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the fresh hedge fund action regarding American Electric Power Company, Inc. (NASDAQ:AEP).
Do Hedge Funds Think AEP Is A Good Stock To Buy Now?
At first quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 38 hedge funds held shares or bullish call options in AEP a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of American Electric Power Company, Inc. (NASDAQ:AEP), with a stake worth $259.6 million reported as of the end of March. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $169.3 million. Renaissance Technologies, ExodusPoint Capital, and Adage Capital Management 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 Coann Capital allocated the biggest weight to American Electric Power Company, Inc. (NASDAQ:AEP), around 9.12% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, designating 0.76 percent of its 13F equity portfolio to AEP.
Due to the fact that American Electric Power Company, Inc. (NASDAQ:AEP) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers who sold off their positions entirely last quarter. At the top of the heap, Daniel S. Och’s OZ Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $5.5 million in stock. Bernard Lambilliotte’s fund, Ecofin Ltd, also dumped its stock, about $4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to American Electric Power Company, Inc. (NASDAQ:AEP). These stocks are National Grid plc (NYSE:NGG), Roku, Inc. (NASDAQ:ROKU), IDEXX Laboratories, Inc. (NASDAQ:IDXX), Microchip Technology Incorporated (NASDAQ:MCHP), Manulife Financial Corporation (NYSE:MFC), eBay Inc (NASDAQ:EBAY), and L3Harris Technologies, Inc. (NYSE:LHX). This group of stocks’ market values are closest to AEP’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $1897 million. That figure was $809 million in AEP’s case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 9 bullish hedge fund positions. American Electric Power Company, Inc. (NASDAQ:AEP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AEP is 51.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately AEP wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AEP investors were disappointed as the stock returned 1.4% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.