We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Public Service Enterprise Group Incorporated (NYSE:PEG) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Public Service Enterprise Group Incorporated (NYSE:PEG) a buy here? Hedge funds are in a bullish mood. The number of bullish hedge fund bets inched up by 11 recently. Our calculations also showed that PEG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 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 41 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the recent hedge fund action regarding Public Service Enterprise Group Incorporated (NYSE:PEG).
How have hedgies been trading Public Service Enterprise Group Incorporated (NYSE:PEG)?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 55% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PEG over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Public Service Enterprise Group Incorporated (NYSE:PEG) was held by Zimmer Partners, which reported holding $184.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $154.1 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to Public Service Enterprise Group Incorporated (NYSE:PEG), around 4.67% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, setting aside 2.55 percent of its 13F equity portfolio to PEG.
As one would reasonably expect, specific money managers have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, created the biggest position in Public Service Enterprise Group Incorporated (NYSE:PEG). ExodusPoint Capital had $14.3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $10.3 million position during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s go over hedge fund activity in other stocks similar to Public Service Enterprise Group Incorporated (NYSE:PEG). These stocks are HP Inc. (NYSE:HPQ), eBay Inc (NASDAQ:EBAY), Atlassian Corporation Plc (NASDAQ:TEAM), and AvalonBay Communities Inc (NYSE:AVB). This group of stocks’ market caps resemble PEG’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 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $2315 million. That figure was $987 million in PEG’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 23 bullish hedge fund positions. Public Service Enterprise Group Incorporated (NYSE:PEG) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately PEG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PEG investors were disappointed as the stock returned -16.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.