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Should You Avoid Black Hills Corporation (BKH)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Black Hills Corporation (NYSE:BKH).

Black Hills Corporation (NYSE:BKH) was in 16 hedge funds’ portfolios at the end of the second quarter of 2019. BKH has seen a decrease in hedge fund sentiment of late. There were 18 hedge funds in our database with BKH holdings at the end of the previous quarter. Our calculations also showed that BKH isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GAMCO Investors, Mario Gabelli

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the new hedge fund action regarding Black Hills Corporation (NYSE:BKH).

Hedge fund activity in Black Hills Corporation (NYSE:BKH)

Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in BKH a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

BKH_oct2019

The largest stake in Black Hills Corporation (NYSE:BKH) was held by Renaissance Technologies, which reported holding $96.4 million worth of stock at the end of March. It was followed by GAMCO Investors with a $20.7 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Shelter Harbor Advisors.

Because Black Hills Corporation (NYSE:BKH) has faced bearish sentiment from hedge fund managers, we can see that there was a specific group of hedge funds who sold off their positions entirely by the end of the second quarter. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $1.3 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $1.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Black Hills Corporation (NYSE:BKH) but similarly valued. We will take a look at Blackstone Mortgage Trust Inc (NYSE:BXMT), Huntsman Corporation (NYSE:HUN), Blueprint Medicines Corporation (NASDAQ:BPMC), and 51job, Inc. (NASDAQ:JOBS). This group of stocks’ market valuations match BKH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BXMT 20 143928 5
HUN 30 413733 -5
BPMC 27 663156 -5
JOBS 9 22105 -3
Average 21.5 310731 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $311 million. That figure was $155 million in BKH’s case. Huntsman Corporation (NYSE:HUN) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 9 bullish hedge fund positions. Black Hills Corporation (NYSE:BKH) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BKH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BKH investors were disappointed as the stock returned -1.2% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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