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Is Atmos Energy Corporation (ATO) Going to Burn These Hedge Funds?

While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Atmos Energy Corporation (NYSE:ATO).

Is Atmos Energy Corporation (NYSE:ATO) an outstanding investment today? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund positions decreased by 2 recently. Our calculations also showed that ATO isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Phill Gross, Adage Capital Management

Let’s review the fresh hedge fund action encompassing Atmos Energy Corporation (NYSE:ATO).

How are hedge funds trading Atmos Energy Corporation (NYSE:ATO)?

Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in ATO heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

ATO_dec2018

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the biggest position in Atmos Energy Corporation (NYSE:ATO). Adage Capital Management has a $61.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $28.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Clint Carlson’s Carlson Capital, Jim Simons’s Renaissance Technologies and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Judging by the fact that Atmos Energy Corporation (NYSE:ATO) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedgies that decided to sell off their full holdings heading into Q3. It’s worth mentioning that Jonathan Barrett and Paul Segal’s Luminus Management sold off the largest position of all the hedgies followed by Insider Monkey, valued at about $36.8 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund cut about $2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Atmos Energy Corporation (NYSE:ATO) but similarly valued. We will take a look at Tata Motors Limited (NYSE:TTM), Leidos Holdings Inc (NYSE:LDOS), Packaging Corporation Of America (NYSE:PKG), and Melco Resorts & Entertainment Limited (NASDAQ:MLCO). All of these stocks’ market caps match ATO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTM 9 120349 -3
LDOS 27 472777 0
PKG 26 315125 0
MLCO 27 398249 -8
Average 22.25 326625 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $168 million in ATO’s case. Leidos Holdings Inc (NYSE:LDOS) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 9 bullish hedge fund positions. Atmos Energy Corporation (NYSE:ATO) 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. In this regard LDOS might be a better candidate to consider a long position.

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

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