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Peabody Energy Corporation (BTU): Hedge Funds In Wait-and-See Mode

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Peabody Energy Corporation (NYSE:BTU).

Peabody Energy Corporation (NYSE:BTU) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ship Finance International Limited (NYSE:SFL), Groupon Inc (NASDAQ:GRPN), and Change Healthcare Inc. (NASDAQ:CHNG) to gather more data points. Our calculations also showed that BTU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the latest hedge fund action encompassing Peabody Energy Corporation (NYSE:BTU).

What have hedge funds been doing with Peabody Energy Corporation (NYSE:BTU)?

At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 34 hedge funds held shares or bullish call options in BTU a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

BTU_dec2019

The largest stake in Peabody Energy Corporation (NYSE:BTU) was held by Elliott Management, which reported holding $425.6 million worth of stock at the end of September. It was followed by Contrarian Capital with a $120.4 million position. Other investors bullish on the company included Renaissance Technologies, Platinum Asset Management, and Mangrove Partners. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 10.98% of its portfolio. Venor Capital Management is also relatively very bullish on the stock, earmarking 3.6 percent of its 13F equity portfolio to BTU.

Seeing as Peabody Energy Corporation (NYSE:BTU) has experienced bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who were dropping their entire stakes heading into Q4. At the top of the heap, Ken Griffin’s Citadel Investment Group dumped the largest investment of the 750 funds monitored by Insider Monkey, totaling close to $6.4 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also said goodbye to its stock, about $3.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Peabody Energy Corporation (NYSE:BTU). These stocks are SFL Corporation Ltd. (NYSE:SFL), Groupon Inc (NASDAQ:GRPN), Change Healthcare Inc. (NASDAQ:CHNG), and Granite Construction Incorporated (NYSE:GVA). This group of stocks’ market caps are closest to BTU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFL 12 61459 1
GRPN 21 274180 -3
CHNG 22 255472 -7
GVA 11 38136 0
Average 16.5 157312 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $725 million in BTU’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Granite Construction Incorporated (NYSE:GVA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BTU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -33.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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