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Hedge Funds Never Been This Bullish On The Southern Company (SO)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded The Southern Company (NYSE:SO) and determine whether the smart money was really smart about this stock.

Is The Southern Company (NYSE:SO) a healthy stock for your portfolio? Hedge funds were becoming more confident. The number of bullish hedge fund bets advanced by 5 in recent months. The Southern Company (NYSE:SO) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SO 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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

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 junior gold mining stock. 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 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. With all of this in mind we’re going to go over the new hedge fund action regarding The Southern Company (NYSE:SO).

How have hedgies been trading The Southern Company (NYSE:SO)?

Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SO over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SO A Good Stock To Buy?

Among these funds, Zimmer Partners held the most valuable stake in The Southern Company (NYSE:SO), which was worth $65.8 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $65.3 million worth of shares. D E Shaw, Citadel Investment Group, and Renaissance Technologies 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 Horseman Capital Management allocated the biggest weight to The Southern Company (NYSE:SO), around 1.76% of its 13F portfolio. Aequim Alternative Investments is also relatively very bullish on the stock, setting aside 1 percent of its 13F equity portfolio to SO.

As industrywide interest jumped, specific money managers were breaking ground themselves. Engineers Gate Manager, managed by Greg Eisner, created the biggest position in The Southern Company (NYSE:SO). Engineers Gate Manager had $3.1 million invested in the company at the end of the quarter. Jinghua Yan’s TwinBeech Capital also initiated a $2.4 million position during the quarter. The other funds with brand new SO positions are Lee Ainslie’s Maverick Capital, Paul Tudor Jones’s Tudor Investment Corp, and Brandon Haley’s Holocene Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Southern Company (NYSE:SO) but similarly valued. We will take a look at Illumina, Inc. (NASDAQ:ILMN), Marsh & McLennan Companies, Inc. (NYSE:MMC), Uber Technologies, Inc. (NYSE:UBER), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), CSX Corporation (NYSE:CSX), Air Products & Chemicals, Inc. (NYSE:APD), and Vale SA (NYSE:VALE). This group of stocks’ market caps resemble SO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ILMN 41 1193190 7
MMC 38 846796 1
UBER 94 5388672 -3
PBR 29 1409778 -3
CSX 46 2290942 -11
APD 37 439684 -4
VALE 29 1613921 1
Average 44.9 1883283 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.9 hedge funds with bullish positions and the average amount invested in these stocks was $1883 million. That figure was $361 million in SO’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is the least popular one with only 29 bullish hedge fund positions. The Southern Company (NYSE:SO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SO is 46.9. 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. 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 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately SO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SO investors were disappointed as the stock returned 1.8% since Q2 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.