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Were Hedge Funds Right About Ditching Black Hills Corporation (BKH)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Black Hills Corporation (NYSE:BKH) based on that data and determine whether they were really smart about the stock.

Black Hills Corporation (NYSE:BKH) has seen a decrease in hedge fund interest of late. BKH was in 18 hedge funds’ portfolios at the end of March. There were 24 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 (click for Q1 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.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

TUDOR INVESTMENT CORP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s check out the new hedge fund action surrounding Black Hills Corporation (NYSE:BKH).

What have hedge funds been doing with Black Hills Corporation (NYSE:BKH)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in BKH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BKH A Good Stock To Buy?

The largest stake in Black Hills Corporation (NYSE:BKH) was held by Renaissance Technologies, which reported holding $111.8 million worth of stock at the end of September. It was followed by GAMCO Investors with a $13.1 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Black Hills Corporation (NYSE:BKH), around 0.88% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, designating 0.19 percent of its 13F equity portfolio to BKH.

Judging by the fact that Black Hills Corporation (NYSE:BKH) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their positions entirely last quarter. It’s worth mentioning that Peter J. Hark’s Shelter Harbor Advisors said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at about $7.9 million in stock, and Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital was right behind this move, as the fund dropped about $3.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds last quarter.

Let’s check out 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 Virtu Financial Inc (NASDAQ:VIRT), Herbalife Nutrition Ltd. (NYSE:HLF), IAA, Inc. (NYSE:IAA), and Enphase Energy Inc (NASDAQ:ENPH). This group of stocks’ market valuations are similar to BKH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIRT 17 72830 2
HLF 31 2056361 -1
IAA 39 804594 2
ENPH 35 370199 -4
Average 30.5 825996 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $826 million. That figure was $170 million in BKH’s case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand Virtu Financial Inc (NASDAQ:VIRT) is the least popular one with only 17 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 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately BKH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BKH investors were disappointed as the stock returned -6.3% since Q1 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 most of these stocks already outperformed the market in 2020.

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