Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is CenterPoint Energy, Inc. (NYSE:CNP), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is CNP a good stock to buy now? Prominent investors were selling. The number of long hedge fund bets decreased by 10 in recent months. CenterPoint Energy, Inc. (NYSE:CNP) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 38. Our calculations also showed that CNP 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.
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. Now we’re going to take a peek at the key hedge fund action surrounding CenterPoint Energy, Inc. (NYSE:CNP).
Do Hedge Funds Think CNP Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CNP over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of CenterPoint Energy, Inc. (NYSE:CNP), with a stake worth $104.1 million reported as of the end of September. Trailing Citadel Investment Group was Levin Easterly Partners, which amassed a stake valued at $100.7 million. Adage Capital Management, Corvex Capital, and Millennium Management 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 One Fin Capital Management allocated the biggest weight to CenterPoint Energy, Inc. (NYSE:CNP), around 4.56% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, earmarking 4 percent of its 13F equity portfolio to CNP.
Because CenterPoint Energy, Inc. (NYSE:CNP) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their positions entirely in the third quarter. It’s worth mentioning that Stuart J. Zimmer’s Zimmer Partners dropped the largest position of the 750 funds tracked by Insider Monkey, totaling about $57.3 million in stock, and Franklin Parlamis’s Aequim Alternative Investments was right behind this move, as the fund sold off about $17.8 million worth. These transactions are important to note, as total hedge fund interest fell by 10 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CenterPoint Energy, Inc. (NYSE:CNP) but similarly valued. We will take a look at DaVita Inc (NYSE:DVA), Lennox International Inc. (NYSE:LII), Enphase Energy Inc (NASDAQ:ENPH), Beyond Meat, Inc. (NASDAQ:BYND), Crown Holdings, Inc. (NYSE:CCK), Packaging Corporation Of America (NYSE:PKG), and Apollo Global Management Inc (NYSE:APO). This group of stocks’ market caps match CNP’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $1257 million. That figure was $413 million in CNP’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Packaging Corporation Of America (NYSE:PKG) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks CenterPoint Energy, Inc. (NYSE:CNP) is even less popular than PKG. Our overall hedge fund sentiment score for CNP is 10.8. 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. Hedge funds clearly dropped the ball on CNP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on CNP as the stock returned 12.5% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.