Were Hedge Funds Right About Piling Into PNM Resources, Inc. (PNM)?

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 PNM Resources, Inc. (NYSE:PNM) based on that data and determine whether they were really smart about the stock.

PNM Resources, Inc. (NYSE:PNM) shareholders have witnessed an increase in hedge fund sentiment lately. Our calculations also showed that PNM 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a peek at the new hedge fund action surrounding PNM Resources, Inc. (NYSE:PNM).

What does smart money think about PNM Resources, Inc. (NYSE:PNM)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PNM over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in PNM Resources, Inc. (NYSE:PNM), which was worth $128.4 million at the end of the third quarter. On the second spot was Zimmer Partners which amassed $82.7 million worth of shares. GAMCO Investors, Adage Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to PNM Resources, Inc. (NYSE:PNM), around 6.4% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 1.83 percent of its 13F equity portfolio to PNM.

As industrywide interest jumped, some big names have been driving this bullishness. Zimmer Partners, managed by Stuart J. Zimmer, assembled the most outsized position in PNM Resources, Inc. (NYSE:PNM). Zimmer Partners had $82.7 million invested in the company at the end of the quarter. Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital also initiated a $3.4 million position during the quarter. The other funds with brand new PNM positions are Steve Cohen’s Point72 Asset Management, Noah Levy and Eugene Dozortsev’s Newtyn Management, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks similar to PNM Resources, Inc. (NYSE:PNM). We will take a look at TechnipFMC plc (NYSE:FTI), Ashland Global Holdings Inc.. (NYSE:ASH), NorthWestern Corporation (NYSE:NWE), and Cameco Corporation (NYSE:CCJ). All of these stocks’ market caps are closest to PNM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTI 29 395181 -5
ASH 32 677314 2
NWE 19 125827 0
CCJ 24 267635 -4
Average 26 366489 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $393 million in PNM’s case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand NorthWestern Corporation (NYSE:NWE) is the least popular one with only 19 bullish hedge fund positions. PNM Resources, Inc. (NYSE:PNM) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately PNM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PNM investors were disappointed as the stock returned 1.9% during the second 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 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.