Is BTU A Good Stock To Buy Now?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Peabody Energy Corporation (NYSE:BTU) makes for a good investment right now.

Is BTU a good stock to buy now? The smart money was turning less bullish. The number of long hedge fund positions fell by 3 lately. Peabody Energy Corporation (NYSE:BTU) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 36. Our calculations also showed that BTU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 23 hedge funds in our database with BTU holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Peabody Energy Corporation (NYSE:BTU).

Do Hedge Funds Think BTU Is A Good Stock To Buy Now?

At the end of September, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BTU over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Elliott Investment Management was the largest shareholder of Peabody Energy Corporation (NYSE:BTU), with a stake worth $66.5 million reported as of the end of September. Trailing Elliott Investment Management was Renaissance Technologies, which amassed a stake valued at $9.5 million. Hosking Partners, Adage Capital Management, and Two Sigma Advisors 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 Elliott Investment Management allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 0.7% of its 13F portfolio. Alden Global Capital is also relatively very bullish on the stock, earmarking 0.33 percent of its 13F equity portfolio to BTU.

Due to the fact that Peabody Energy Corporation (NYSE:BTU) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who were dropping their full holdings in the third quarter. At the top of the heap, Kerr Neilson’s Platinum Asset Management dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $5.9 million in stock. Greg Eisner’s fund, Engineers Gate Manager, also said goodbye to its stock, about $0.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Peabody Energy Corporation (NYSE:BTU). These stocks are South Plains Financial, Inc. (NASDAQ:SPFI), Red Violet, Inc. (NASDAQ:RDVT), Kezar Life Sciences, Inc. (NASDAQ:KZR), RBB Bancorp (NASDAQ:RBB), Cooper-Standard Holdings Inc (NYSE:CPS), Westport Fuel Systems Inc. (NASDAQ:WPRT), and Macatawa Bank Corporation (NASDAQ:MCBC). 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
SPFI 2 3871 1
RDVT 2 5446 -3
KZR 13 27196 -1
RBB 6 4972 -3
CPS 11 25448 -2
WPRT 8 14304 -2
MCBC 9 16527 0
Average 7.3 13966 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.3 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $100 million in BTU’s case. Kezar Life Sciences, Inc. (NASDAQ:KZR) is the most popular stock in this table. On the other hand South Plains Financial, Inc. (NASDAQ:SPFI) is the least popular one with only 2 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 68.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Unfortunately BTU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -10% since the end of the third quarter (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.