Hedge Funds Are Buying Southwest Gas Corporation (SWX)

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Southwest Gas Corporation (NYSE:SWX).

Is Southwest Gas Corporation (NYSE:SWX) a buy here? Investors who are in the know are in a bullish mood. The number of long hedge fund positions that are disclosed in regulatory 13F filings advanced by 1 lately. SWX was in 15 hedge funds’ portfolios at the end of the third quarter of 2016. There were 14 hedge funds in our database with SWX positions at the end of the previous quarter. 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 Eagle Materials, Inc. (NYSE:EXP), Echostar Corporation (NASDAQ:SATS), and BWX Technologies Inc (NYSE:BWXT) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about Southwest Gas Corporation (NYSE:SWX)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 7% from the second quarter of 2016. On the other hand, there were a total of 12 hedge funds with a bullish position in SWX at the beginning of this year. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the biggest position in Southwest Gas Corporation (NYSE:SWX), worth close to $67.1 million. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, which holds a $22.5 million position. Some other peers that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and Jim Simons’ Renaissance Technologies. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, specific money managers were breaking ground themselves. Stevens Capital Management, led by Matthew Tewksbury, initiated the most outsized position in Southwest Gas Corporation (NYSE:SWX). Stevens Capital Management had $1 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.4 million position during the quarter. The following funds were also among the new SWX investors: David Costen Haley’s HBK Investments and Robert B. Gillam’s McKinley Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Southwest Gas Corporation (NYSE:SWX). We will take a look at Eagle Materials, Inc. (NYSE:EXP), Echostar Corporation (NASDAQ:SATS), BWX Technologies Inc (NYSE:BWXT), and Santander Consumer USA Holdings Inc (NYSE:SC). All of these stocks’ market caps resemble SWX’s market cap.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $140 million in SWX’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Echostar Corporation (NASDAQ:SATS) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Southwest Gas Corporation (NYSE:SWX) is even less popular than SATS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None