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Were Hedge Funds Right About Xcel Energy Inc (XEL)?

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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Xcel Energy Inc (NYSE:XEL) and determine whether the smart money was really smart about this stock.

Xcel Energy Inc (NYSE:XEL) has seen an increase in support from the world’s most elite money managers recently. Our calculations also showed that XEL 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma 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. Keeping this in mind we’re going to take a glance at the recent hedge fund action surrounding Xcel Energy Inc (NYSE:XEL).

How have hedgies been trading Xcel Energy Inc (NYSE:XEL)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in XEL over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is XEL A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the largest position in Xcel Energy Inc (NYSE:XEL). Renaissance Technologies has a $252.8 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $53 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that are bullish contain Stuart J. Zimmer’s Zimmer Partners, Clint Carlson’s Carlson Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to Xcel Energy Inc (NYSE:XEL), around 0.43% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, dishing out 0.4 percent of its 13F equity portfolio to XEL.

As industrywide interest jumped, some big names were leading the bulls’ herd. Zimmer Partners, managed by Stuart J. Zimmer, established the most outsized position in Xcel Energy Inc (NYSE:XEL). Zimmer Partners had $18 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $16.1 million investment in the stock during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Michael Gelband’s ExodusPoint Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Xcel Energy Inc (NYSE:XEL) but similarly valued. We will take a look at Kinder Morgan Inc (NYSE:KMI), TAL Education Group (NYSE:TAL), Ross Stores, Inc. (NASDAQ:ROST), and HCA Healthcare Inc (NYSE:HCA). This group of stocks’ market caps are similar to XEL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KMI 47 947312 7
TAL 38 1801280 8
ROST 49 982341 1
HCA 87 2171218 24
Average 55.25 1475538 10

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.25 hedge funds with bullish positions and the average amount invested in these stocks was $1476 million. That figure was $394 million in XEL’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand TAL Education Group (NYSE:TAL) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Xcel Energy Inc (NYSE:XEL) is even less popular than TAL. Hedge funds dodged a bullet by taking a bearish stance towards XEL. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 15.5 percentage points. Unfortunately XEL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); XEL investors were disappointed as the stock returned 4.3% 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 so far in 2020.

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