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Here is What Hedge Funds Think About FirstEnergy Corp. (FE)

The latest 13F reporting period has come and gone, and 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. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought FirstEnergy Corp. (NYSE:FE) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

FirstEnergy Corp. (NYSE:FE) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. FE shareholders have witnessed a decrease in hedge fund sentiment of late. There were 44 hedge funds in our database with FE positions at the end of the first quarter. Our calculations also showed that FE 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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

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. Now let’s take a glance at the key hedge fund action surrounding FirstEnergy Corp. (NYSE:FE).

What does smart money think about FirstEnergy Corp. (NYSE:FE)?

At Q2’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2020. On the other hand, there were a total of 34 hedge funds with a bullish position in FE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in FirstEnergy Corp. (NYSE:FE), worth close to $247.5 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is Zimmer Partners, managed by Stuart J. Zimmer, which holds a $118.1 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to FirstEnergy Corp. (NYSE:FE), around 10.2% of its 13F portfolio. Kingstown Capital Management is also relatively very bullish on the stock, earmarking 9.13 percent of its 13F equity portfolio to FE.

Seeing as FirstEnergy Corp. (NYSE:FE) has witnessed falling interest from hedge fund managers, it’s easy to see that there were a few money managers who sold off their full holdings by the end of the second quarter. Intriguingly, Jonathan Barrett and Paul Segal’s Luminus Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $33 million in stock, and Josh Donfeld and David Rogers’s Castle Hook Partners was right behind this move, as the fund said goodbye to about $31.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as FirstEnergy Corp. (NYSE:FE) but similarly valued. We will take a look at Simon Property Group, Inc (NYSE:SPG), Canon Inc. (NYSE:CAJ), Equifax Inc. (NYSE:EFX), Cerner Corporation (NASDAQ:CERN), Fiat Chrysler Automobiles NV (NYSE:FCAU), DTE Energy Company (NYSE:DTE), and New Oriental Education & Technology Group Inc. (NYSE:EDU). This group of stocks’ market valuations match FE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPG 27 531930 -2
CAJ 9 55132 2
EFX 28 1186553 -4
CERN 38 875303 -3
FCAU 20 365898 -5
DTE 24 384220 -5
EDU 39 1378683 -3
Average 26.4 682531 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $683 million. That figure was $992 million in FE’s case. New Oriental Education & Technology Group Inc. (NYSE:EDU) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks FirstEnergy Corp. (NYSE:FE) is more popular among hedge funds. Our overall hedge fund sentiment score for FE is 80. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately FE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FE were disappointed as the stock returned -25.3% 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.