Is FirstEnergy Corp. (FE) Going to Burn These Hedge Funds?

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards FirstEnergy Corp. (NYSE:FE).

Is FirstEnergy Corp. (NYSE:FE) a buy right now? Hedge funds were becoming less hopeful. The number of bullish hedge fund positions dropped by 15 in recent months. FirstEnergy Corp. (NYSE:FE) was in 36 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 59. Our calculations also showed that FE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 51 hedge funds in our database with FE holdings at the end of March.

To most stock holders, hedge funds are viewed as worthless, outdated investment tools of yesteryear. While there are more than 8000 funds in operation today, Our researchers hone in on the bigwigs of this club, about 850 funds. Most estimates calculate that this group of people shepherd most of the hedge fund industry’s total asset base, and by observing their best stock picks, Insider Monkey has deciphered various investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Most Popular Stocks Among Hedge Funds

Carl Icahn of Icahn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to take a gander at the fresh hedge fund action encompassing FirstEnergy Corp. (NYSE:FE).

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

At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the first quarter of 2020. On the other hand, there were a total of 41 hedge funds with a bullish position in FE a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Icahn Capital LP was the largest shareholder of FirstEnergy Corp. (NYSE:FE), with a stake worth $705.8 million reported as of the end of June. Trailing Icahn Capital LP was First Pacific Advisors LLC, which amassed a stake valued at $155 million. Empyrean Capital Partners, D E Shaw, and 683 Capital Partners 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 Mountaineer Partners Management allocated the biggest weight to FirstEnergy Corp. (NYSE:FE), around 6.97% of its 13F portfolio. Jones Road Capital Management is also relatively very bullish on the stock, setting aside 5.22 percent of its 13F equity portfolio to FE.

Since FirstEnergy Corp. (NYSE:FE) has experienced falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds that slashed their full holdings heading into Q3. At the top of the heap, Zach Schreiber’s Point State Capital sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $31.3 million in stock. Kevin D. Eng’s fund, Columbus Hill Capital Management, also dropped its stock, about $30.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 15 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as FirstEnergy Corp. (NYSE:FE) but similarly valued. We will take a look at PG&E Corporation (NYSE:PCG), SK Telecom Co., Ltd. (NYSE:SKM), Seagate Technology Holdings plc (NASDAQ:STX), KeyCorp (NYSE:KEY), Entergy Corporation (NYSE:ETR), L Brands Inc (NYSE:LB), and Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY). This group of stocks’ market valuations are closest to FE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PCG 64 4663822 -1
SKM 8 68342 0
STX 31 1919802 4
KEY 40 443140 -1
ETR 31 595450 0
LB 53 6315005 -6
ALNY 33 1022981 0
Average 37.1 2146935 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.1 hedge funds with bullish positions and the average amount invested in these stocks was $2147 million. That figure was $1704 million in FE’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 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. Our overall hedge fund sentiment score for FE is 33.3. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately FE wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FE investors were disappointed as the stock returned -2.9% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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