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Hedge Funds Have Never Been This Bullish On PG&E Corporation (PCG)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PG&E Corporation (NYSE:PCG) at the end of the second quarter and determine whether the smart money was really smart about this stock.

PG&E Corporation (NYSE:PCG) has experienced an increase in support from the world’s most elite money managers lately. Our calculations also showed that PCG ranked #28 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.

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 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 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.

Anchorage Capital 2014 Q2 Investor Letter

Kevin Michael Ulrich of Anchorage Advisors

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 ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a gander at the key hedge fund action surrounding PG&E Corporation (NYSE:PCG).

What does smart money think about PG&E Corporation (NYSE:PCG)?

Heading into the third quarter of 2020, a total of 92 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 92% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PCG over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in PG&E Corporation (NYSE:PCG) was held by Zimmer Partners, which reported holding $635.4 million worth of stock at the end of September. It was followed by Anchorage Advisors with a $389.5 million position. Other investors bullish on the company included Silver Point Capital, Pentwater Capital Management, and Abrams Capital Management. In terms of the portfolio weights assigned to each position Cyrus Capital Partners allocated the biggest weight to PG&E Corporation (NYSE:PCG), around 59.49% of its 13F portfolio. Silver Point Capital is also relatively very bullish on the stock, dishing out 49.67 percent of its 13F equity portfolio to PCG.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Oaktree Capital Management, managed by Howard Marks, created the largest position in PG&E Corporation (NYSE:PCG). Oaktree Capital Management had $199.6 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also initiated a $116.4 million position during the quarter. The other funds with new positions in the stock are George Soros’s Soros Fund Management, Jonathan Barrett and Paul Segal’s Luminus Management, and Zilvinas Mecelis’s Covalis Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PG&E Corporation (NYSE:PCG) but similarly valued. These stocks are Slack Technologies Inc (NYSE:WORK), Akamai Technologies, Inc. (NASDAQ:AKAM), Ameren Corporation (NYSE:AEE), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Coca-Cola European Partners plc (NYSE:CCEP), Conagra Brands, Inc. (NYSE:CAG), and iQIYI, Inc. (NASDAQ:IQ). All of these stocks’ market caps match PCG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WORK 32 287493 1
AKAM 40 548791 0
AEE 19 474360 -2
IBKR 32 695740 10
CCEP 27 464657 5
CAG 35 614220 5
IQ 17 1283437 -11
Average 28.9 624100 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $624 million. That figure was $4872 million in PCG’s case. Akamai Technologies, Inc. (NASDAQ:AKAM) is the most popular stock in this table. On the other hand iQIYI, Inc. (NASDAQ:IQ) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks PG&E Corporation (NYSE:PCG) is more popular among hedge funds. Our overall hedge fund sentiment score for PCG is 90. 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 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. Unfortunately PCG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PCG were disappointed as the stock returned 2.9% since the end of 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.

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