We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of The Southern Company (NYSE:SO).
Is The Southern Company (NYSE:SO) a buy here? Investors who are in the know are selling. The number of long hedge fund positions were cut by 3 recently. Our calculations also showed that SO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). SO was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 33 hedge funds in our database with SO positions at the end of the previous quarter.
If you’d ask most market participants, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds with their doors open at present, Our researchers choose to focus on the moguls of this group, approximately 850 funds. Most estimates calculate that this group of people preside over bulk of the hedge fund industry’s total asset base, and by tailing their top investments, Insider Monkey has deciphered several investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the recent hedge fund action surrounding The Southern Company (NYSE:SO).
Hedge fund activity in The Southern Company (NYSE:SO)
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the number one position in The Southern Company (NYSE:SO). Renaissance Technologies has a $384 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is Zimmer Partners, managed by Stuart J. Zimmer, which holds a $223.3 million position; 3.1% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Cliff Asness’s AQR Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to The Southern Company (NYSE:SO), around 3.09% of its 13F portfolio. Horseman Capital Management is also relatively very bullish on the stock, designating 1.09 percent of its 13F equity portfolio to SO.
Since The Southern Company (NYSE:SO) has experienced falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of funds who were dropping their entire stakes in the third quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $53.9 million in stock. Clint Carlson’s fund, Carlson Capital, also cut its stock, about $37.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). We will take a look at S&P Global Inc. (NYSE:SPGI), Duke Energy Corporation (NYSE:DUK), Equinor ASA (NYSE:EQNR), and Target Corporation (NYSE:TGT). This group of stocks’ market caps resemble SO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $2055 million. That figure was $866 million in SO’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 14 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. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately SO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SO investors were disappointed as the stock returned -13.8% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.