Was The Smart Money Right About Loading Up On The Southern Company (SO)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of The Southern Company (NYSE:SO).

The Southern Company (NYSE:SO) shareholders have witnessed an increase in support from the world’s most elite money managers recently. The Southern Company (NYSE:SO) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SO 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.

If you’d ask most traders, hedge funds are seen as worthless, outdated investment vehicles of years past. While there are over 8000 funds in operation at the moment, We look at the crème de la crème of this group, about 850 funds. These hedge fund managers preside over bulk of the smart money’s total asset base, and by observing their top equity investments, Insider Monkey has come up with numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s take a look at the new hedge fund action encompassing The Southern Company (NYSE:SO).

How have hedgies been trading The Southern Company (NYSE:SO)?

Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in SO a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in The Southern Company (NYSE:SO) was held by Zimmer Partners, which reported holding $65.8 million worth of stock at the end of June. It was followed by Two Sigma Advisors with a $65.3 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Horseman Capital Management allocated the biggest weight to The Southern Company (NYSE:SO), around 1.76% of its 13F portfolio. Aequim Alternative Investments is also relatively very bullish on the stock, earmarking 1 percent of its 13F equity portfolio to SO.

As aggregate interest increased, some big names have jumped into The Southern Company (NYSE:SO) headfirst. Engineers Gate Manager, managed by Greg Eisner, assembled the most outsized position in The Southern Company (NYSE:SO). Engineers Gate Manager had $3.1 million invested in the company at the end of the quarter. Jinghua Yan’s TwinBeech Capital also made a $2.4 million investment in the stock during the quarter. The following funds were also among the new SO investors: Lee Ainslie’s Maverick Capital, Paul Tudor Jones’s Tudor Investment Corp, and Brandon Haley’s Holocene Advisors.

Let’s also examine hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). We will take a look at Illumina, Inc. (NASDAQ:ILMN), Marsh & McLennan Companies, Inc. (NYSE:MMC), Uber Technologies, Inc. (NYSE:UBER), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), CSX Corporation (NASDAQ:CSX), Air Products & Chemicals, Inc. (NYSE:APD), and Vale SA (NYSE:VALE). All of these stocks’ market caps are closest to SO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.9 hedge funds with bullish positions and the average amount invested in these stocks was $1883 million. That figure was $361 million in SO’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is the least popular one with only 29 bullish hedge fund positions. The Southern Company (NYSE:SO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SO is 46.9. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on SO as the stock returned 12.1% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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