“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards El Paso Electric Company (NYSE:EE) and see how it was affected.
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the key hedge fund action regarding El Paso Electric Company (NYSE:EE).
How are hedge funds trading El Paso Electric Company (NYSE:EE)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EE over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the most valuable position in El Paso Electric Company (NYSE:EE), worth close to $81.4 million, accounting for 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Israel Englander of Millennium Management, with a $75.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish contain Jim Simons’s Renaissance Technologies, Jos Shaver’s Electron Capital Partners and Ken Griffin’s Citadel Investment Group.
As one would reasonably expect, specific money managers have been driving this bullishness. Electron Capital Partners, managed by Jos Shaver, established the most valuable position in El Paso Electric Company (NYSE:EE). Electron Capital Partners had $42.2 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also initiated a $0.7 million position during the quarter. The following funds were also among the new EE investors: Paul Tudor Jones’s Tudor Investment Corp and Benjamin A. Smith’s Laurion Capital Management.
Let’s go over hedge fund activity in other stocks similar to El Paso Electric Company (NYSE:EE). These stocks are Main Street Capital Corporation (NYSE:MAIN), Nelnet, Inc. (NYSE:NNI), Shake Shack Inc (NYSE:SHAK), and Avalara, Inc. (NYSE:AVLR). All of these stocks’ market caps resemble EE’s market cap.
|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 15 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $308 million in EE’s case. Shake Shack Inc (NYSE:SHAK) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. El Paso Electric Company (NYSE:EE) 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. In this regard SHAK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.