In this article we will take a look at whether hedge funds think Edison International (NYSE:EIX) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Edison International (NYSE:EIX) a healthy stock for your portfolio? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund bets retreated by 5 in recent months. Our calculations also showed that EIX 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). EIX was in 29 hedge funds’ portfolios at the end of the first quarter of 2020. There were 34 hedge funds in our database with EIX positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the new hedge fund action encompassing Edison International (NYSE:EIX).
What have hedge funds been doing with Edison International (NYSE:EIX)?
At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in EIX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pzena Investment Management was the largest shareholder of Edison International (NYSE:EIX), with a stake worth $283.1 million reported as of the end of September. Trailing Pzena Investment Management was Canyon Capital Advisors, which amassed a stake valued at $159.7 million. Citadel Investment Group, Zimmer Partners, and Renaissance Technologies 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 Inherent Group allocated the biggest weight to Edison International (NYSE:EIX), around 20.36% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, setting aside 7.4 percent of its 13F equity portfolio to EIX.
Due to the fact that Edison International (NYSE:EIX) has faced a decline in interest from hedge fund managers, we can see that there is a sect of hedgies who sold off their positions entirely last quarter. Intriguingly, Robert Pitts’s Steadfast Capital Management dumped the largest position of all the hedgies followed by Insider Monkey, totaling about $84.9 million in stock. William B. Gray’s fund, Orbis Investment Management, also dumped its stock, about $34 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Edison International (NYSE:EIX). These stocks are Seattle Genetics, Inc. (NASDAQ:SGEN), AutoZone, Inc. (NYSE:AZO), PPG Industries, Inc. (NYSE:PPG), and Credit Suisse Group AG (NYSE:CS). This group of stocks’ market values match EIX’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 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $2009 million. That figure was $1046 million in EIX’s case. AutoZone, Inc. (NYSE:AZO) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 11 bullish hedge fund positions. Edison International (NYSE:EIX) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately EIX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EIX investors were disappointed as the stock returned 6.1% 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.
Disclosure: None. This article was originally published at Insider Monkey.