Is ALLETE Inc (ALE) A Good Stock To Buy?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards ALLETE Inc (NYSE:ALE).

Is ALLETE Inc (NYSE:ALE) an exceptional investment now? The smart money is taking a bullish view. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that ALE isn’t among the 30 most popular stocks among hedge funds.

To the average investor there are numerous signals market participants put to use to analyze their stock investments. Two of the most innovative signals are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top money managers can outclass the broader indices by a significant amount (see the details here).


Cliff Asness of AQR Capital Management

Let’s go over the latest hedge fund action regarding ALLETE Inc (NYSE:ALE).

What have hedge funds been doing with ALLETE Inc (NYSE:ALE)?

Heading into the first quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ALE over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


According to Insider Monkey’s hedge fund database, Jim Simons’s Renaissance Technologies has the most valuable position in ALLETE Inc (NYSE:ALE), worth close to $82.3 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Polaris Capital Management, led by Bernard Horn, holding a $48.4 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Noam Gottesman’s GLG Partners, Cliff Asness’s AQR Capital Management and Chuck Royce’s Royce & Associates.

Consequently, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in ALLETE Inc (NYSE:ALE). Citadel Investment Group had $9.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.4 million position during the quarter. The following funds were also among the new ALE investors: Ronald Hua’s Qtron Investments and Minhua Zhang’s Weld Capital Management.

Let’s go over hedge fund activity in other stocks similar to ALLETE Inc (NYSE:ALE). These stocks are PBF Energy Inc (NYSE:PBF), Jabil Inc. (NYSE:JBL), First Financial Bankshares Inc (NASDAQ:FFIN), and Insperity Inc (NYSE:NSP). This group of stocks’ market caps match ALE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBF 18 393653 -11
JBL 20 316036 -2
FFIN 6 6455 0
NSP 24 262674 8
Average 17 244705 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $207 million in ALE’s case. Insperity Inc (NYSE:NSP) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 6 bullish hedge fund positions. ALLETE Inc (NYSE:ALE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ALE wasn’t nearly as popular as these 15 stock and hedge funds that were betting on ALE were disappointed as the stock returned 5.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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