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NRG Energy Inc (NRG): Hedge Funds Taking Some Chips Off The Table

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought NRG Energy Inc (NYSE:NRG) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is NRG Energy Inc (NYSE:NRG) a superb investment today? Investors who are in the know were getting less optimistic. The number of bullish hedge fund positions shrunk by 2 recently. NRG Energy Inc (NYSE:NRG) was in 36 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. Our calculations also showed that NRG isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

To the average investor there are numerous indicators stock traders have at their disposal to appraise stocks. A pair of the most useful indicators are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the best hedge fund managers can outclass their index-focused peers by a superb amount (see the details here).

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to analyze the fresh hedge fund action encompassing NRG Energy Inc (NYSE:NRG).

What have hedge funds been doing with NRG Energy Inc (NYSE:NRG)?

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NRG over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NRG A Good Stock To Buy?

The largest stake in NRG Energy Inc (NYSE:NRG) was held by Pzena Investment Management, which reported holding $223.2 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $122.8 million position. Other investors bullish on the company included Steadfast Capital Management, Permian Investment Partners, and GLG Partners. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to NRG Energy Inc (NYSE:NRG), around 19.07% of its 13F portfolio. SAYA Management is also relatively very bullish on the stock, earmarking 11.46 percent of its 13F equity portfolio to NRG.

Seeing as NRG Energy Inc (NYSE:NRG) has experienced bearish sentiment from the smart money, we can see that there was a specific group of hedgies who were dropping their positions entirely heading into Q3. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, comprising about $39.3 million in stock. Jonathan Barrett and Paul Segal’s fund, Luminus Management, also said goodbye to its stock, about $30.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NRG Energy Inc (NYSE:NRG) but similarly valued. We will take a look at Globe Life Inc. (NYSE:GL), Universal Health Services, Inc. (NYSE:UHS), Paylocity Holding Corp (NASDAQ:PCTY), Regency Centers Corp (NYSE:REG), Generac Holdings Inc. (NYSE:GNRC), Elastic N.V. (NYSE:ESTC), and Tenaris S.A. (NYSE:TS). All of these stocks’ market caps are closest to NRG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GL 33 706101 11
UHS 38 446238 8
PCTY 24 476733 -9
REG 15 124124 -3
GNRC 36 473108 7
ESTC 43 1385856 10
TS 12 204534 -3
Average 28.7 545242 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $1095 million in NRG’s case. Elastic N.V. (NYSE:ESTC) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 12 bullish hedge fund positions. NRG Energy Inc (NYSE:NRG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NRG is 63.3. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately NRG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NRG were disappointed as the stock returned 6.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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