How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PNM Resources, Inc. (NYSE:PNM) and determine whether hedge funds had an edge regarding this stock.
PNM Resources, Inc. (NYSE:PNM) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PNM has experienced an increase in hedge fund interest of late. There were 22 hedge funds in our database with PNM positions at the end of the first quarter. Our calculations also showed that PNM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the fresh hedge fund action regarding PNM Resources, Inc. (NYSE:PNM).
What have hedge funds been doing with PNM Resources, Inc. (NYSE:PNM)?
Heading into the third quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the first quarter of 2020. On the other hand, there were a total of 13 hedge funds with a bullish position in PNM a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of PNM Resources, Inc. (NYSE:PNM), with a stake worth $86.5 million reported as of the end of September. Trailing Zimmer Partners was Renaissance Technologies, which amassed a stake valued at $85 million. GAMCO Investors, Adage Capital Management, and Citadel Investment Group 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 Blackstart Capital allocated the biggest weight to PNM Resources, Inc. (NYSE:PNM), around 4.15% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, designating 1.97 percent of its 13F equity portfolio to PNM.
As one would reasonably expect, key money managers have jumped into PNM Resources, Inc. (NYSE:PNM) headfirst. Cinctive Capital Management, managed by Richard SchimeláandáLawrence Sapanski, created the most valuable position in PNM Resources, Inc. (NYSE:PNM). Cinctive Capital Management had $5.7 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $3.2 million investment in the stock during the quarter. The following funds were also among the new PNM investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Benjamin A. Smith’s Laurion Capital Management, and Hoon Kim’s Quantinno Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as PNM Resources, Inc. (NYSE:PNM) but similarly valued. We will take a look at Ardagh Group S.A. (NYSE:ARD), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Intercorp Financial Services Inc. (NYSE:IFS), SmileDirectClub, Inc. (NASDAQ:SDC), EQT Corporation (NYSE:EQT), Bank OZK (NASDAQ:OZK), and Foot Locker, Inc. (NYSE:FL). All of these stocks’ market caps are closest to PNM’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 20 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $359 million in PNM’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. PNM Resources, Inc. (NYSE:PNM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNM is 73.9. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on PNM, though not to the same extent, as the stock returned 7.4% since the end of June (through September 25th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.