Is PPL A Good Stock To Buy According To Hedge Funds?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards PPL Corporation (NYSE:PPL).

Is PPL a good stock to buy now? The smart money was taking a bearish view. The number of long hedge fund positions went down by 4 in recent months. PPL Corporation (NYSE:PPL) was in 21 hedge funds’ portfolios at the end of September. The all time high for this statistic is 32. Our calculations also showed that PPL 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.

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 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 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.

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 go over the recent hedge fund action regarding PPL Corporation (NYSE:PPL).

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

At the end of September, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PPL over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Electron Capital Partners, managed by Jos Shaver, holds the largest position in PPL Corporation (NYSE:PPL). Electron Capital Partners has a $80 million position in the stock, comprising 5.5% of its 13F portfolio. The second most bullish fund manager is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $69.1 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism consist of Cliff Asness’s AQR Capital Management, and Joel Greenblatt’s Gotham Asset Management. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to PPL Corporation (NYSE:PPL), around 5.53% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, earmarking 3.64 percent of its 13F equity portfolio to PPL.

Due to the fact that PPL Corporation (NYSE:PPL) has faced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of funds that elected to cut their entire stakes heading into Q4. Intriguingly, Renaissance Technologies cut the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $15 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $13.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to PPL Corporation (NYSE:PPL). We will take a look at State Street Corporation (NYSE:STT), West Pharmaceutical Services Inc. (NYSE:WST), Ecopetrol S.A. (NYSE:EC), Arthur J. Gallagher & Co. (NYSE:AJG), Alexandria Real Estate Equities Inc (NYSE:ARE), Nasdaq, Inc. (NASDAQ:NDAQ), and Interactive Brokers Group, Inc. (NASDAQ:IBKR). This group of stocks’ market valuations resemble PPL’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $350 million. That figure was $216 million in PPL’s case. West Pharmaceutical Services Inc. (NYSE:WST) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 7 bullish hedge fund positions. PPL Corporation (NYSE:PPL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PPL is 41.3. 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 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 surpassed the market again by 15.8 percentage points. Unfortunately PPL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PPL investors were disappointed as the stock returned 2.9% since the end of September (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.

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