Hedge Funds Dipping Their Toes Back Into Quanta Services Inc (PWR)

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 Quanta Services Inc (NYSE:PWR) and determine whether hedge funds had an edge regarding this stock.

Is Quanta Services Inc (NYSE:PWR) ready to rally soon? The best stock pickers were in an optimistic mood. The number of bullish hedge fund positions moved up by 3 recently. Quanta Services Inc (NYSE:PWR) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that PWR 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). There were 28 hedge funds in our database with PWR positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Harnisch

William Harnisch of Peconic Partners LLC

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a peek at the latest hedge fund action regarding Quanta Services Inc (NYSE:PWR).

What have hedge funds been doing with Quanta Services Inc (NYSE:PWR)?

At the end of June, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PWR over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Quanta Services Inc (NYSE:PWR) was held by Peconic Partners LLC, which reported holding $223.1 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $138 million position. Other investors bullish on the company included AQR Capital Management, Greenhaven Associates, and D E Shaw. In terms of the portfolio weights assigned to each position Peconic Partners LLC allocated the biggest weight to Quanta Services Inc (NYSE:PWR), around 62.19% of its 13F portfolio. ACK Asset Management is also relatively very bullish on the stock, setting aside 6.95 percent of its 13F equity portfolio to PWR.

Now, key money managers were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, initiated the most outsized position in Quanta Services Inc (NYSE:PWR). Scopus Asset Management had $17.3 million invested in the company at the end of the quarter. Nathaniel August’s Mangrove Partners also made a $6.4 million investment in the stock during the quarter. The following funds were also among the new PWR investors: Ray Dalio’s Bridgewater Associates, Lee Ainslie’s Maverick Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s go over hedge fund activity in other stocks similar to Quanta Services Inc (NYSE:PWR). We will take a look at BWX Technologies Inc (NYSE:BWXT), Reinsurance Group of America Inc (NYSE:RGA), Douglas Emmett, Inc. (NYSE:DEI), Dunkin Brands Group Inc (NASDAQ:DNKN), First American Financial Corp (NYSE:FAF), Jones Lang LaSalle Inc (NYSE:JLL), and Woori Financial Group Inc. (NYSE:WF). All of these stocks’ market caps match PWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BWXT 27 141453 3
RGA 33 240555 3
DEI 27 699337 5
DNKN 35 416764 1
FAF 44 685903 4
JLL 23 676141 -3
WF 5 3508 2
Average 27.7 409094 2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $624 million in PWR’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 5 bullish hedge fund positions. Quanta Services Inc (NYSE:PWR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PWR is 62.5. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on PWR as the stock returned 33.2% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.