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Hedge Funds Never Been Less Bullish On Peabody Energy Corporation (BTU)

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 Peabody Energy Corporation (NYSE:BTU) and determine whether hedge funds had an edge regarding this stock.

Peabody Energy Corporation (NYSE:BTU) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. BTU investors should pay attention to a decrease in support from the world’s most elite money managers recently. There were 25 hedge funds in our database with BTU holdings at the end of March. Our calculations also showed that BTU 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.

In today’s marketplace there are a large number of tools investors employ to size up stocks. A duo of the most innovative tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best money managers can beat the market by a significant amount (see the details here).

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 let’s check out the recent hedge fund action encompassing Peabody Energy Corporation (NYSE:BTU).

How have hedgies been trading Peabody Energy Corporation (NYSE:BTU)?

Heading into the third quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BTU over the last 20 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Elliott Investment Management held the most valuable stake in Peabody Energy Corporation (NYSE:BTU), which was worth $83.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $11.3 million worth of shares. Hosking Partners, Platinum Asset Management, and Contrarius Investment Management 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 DC Capital Partners allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 0.97% of its 13F portfolio. Elliott Investment Management is also relatively very bullish on the stock, earmarking 0.91 percent of its 13F equity portfolio to BTU.

Because Peabody Energy Corporation (NYSE:BTU) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few hedgies who were dropping their positions entirely last quarter. At the top of the heap, Jon Bauer’s Contrarian Capital dumped the biggest investment of the 750 funds watched by Insider Monkey, comprising an estimated $3.5 million in stock. Nathaniel August’s fund, Mangrove Partners, also dropped its stock, about $2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Peabody Energy Corporation (NYSE:BTU) but similarly valued. We will take a look at Trilogy Metals Inc. (NYSE:TMQ), GameStop Corp. (NYSE:GME), Alexco Resource Corp. (NYSE:AXU), Modine Manufacturing Company (NYSE:MOD), Peoples Financial Services Corp. (NASDAQ:PFIS), Source Capital, Inc. (NYSE:SOR), and Americas Gold and Silver Corporation (NYSE:USAS). This group of stocks’ market caps are similar to BTU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TMQ 7 62854 0
GME 19 43267 2
AXU 5 1393 1
MOD 15 39283 -1
PFIS 1 2497 0
SOR 4 13234 0
USAS 6 6394 -2
Average 8.1 24132 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.1 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $125 million in BTU’s case. GameStop Corp. (NYSE:GME) is the most popular stock in this table. On the other hand Peoples Financial Services Corp. (NASDAQ:PFIS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our overall hedge fund sentiment score for BTU is 72.2. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately BTU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -20.1% during the third 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.