Before we spend many hours researching a company, we’d like to analyze what insiders, hedge funds and billionaire investors think of the stock first. We would like to do so because the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of FirstEnergy Corp. (NYSE:FE).
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 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.
Let’s view the recent hedge fund action encompassing FirstEnergy Corp. (NYSE:FE).
What have hedge funds been doing with FirstEnergy Corp. (NYSE:FE)?
Heading into the fourth quarter of 2018, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FE over the last 13 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of FirstEnergy Corp. (NYSE:FE), with a stake worth $1119.8 million reported as of the end of September. Trailing Zimmer Partners was Elliott Management, which amassed a stake valued at $930.9 million. Renaissance Technologies, Millennium Management, and Fir Tree were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers have been driving this bullishness. Elliott Management, managed by Paul Singer, established the biggest position in FirstEnergy Corp. (NYSE:FE). Elliott Management had $930.9 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal’s Luminus Management also initiated a $49.2 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, George Soros’s Soros Fund Management, and Jody LaNasa’s Serengeti Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to FirstEnergy Corp. (NYSE:FE). These stocks are IAC/InterActiveCorp (NASDAQ:IAC), Total System Services, Inc. (NYSE:TSS), The Hartford Financial Services Group Inc (NYSE:HIG), and Cheniere Energy, Inc. (NYSEAMEX:LNG). This group of stocks’ market caps are similar to FE’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 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $3.00 billion. That figure was $3.70 billion in FE’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Total System Services, Inc. (NYSE:TSS) is the least popular one with only 35 bullish hedge fund positions. FirstEnergy Corp. (NYSE:FE) 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 IAC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.