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Will Peabody Energy Corporation (BTU) Burn These Hedge Funds?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Peabody Energy Corporation (NYSE:BTU) in this article.

Is Peabody Energy Corporation (NYSE:BTU) the right pick for your portfolio? The best stock pickers are getting more bullish. The number of long hedge fund bets increased by 4 in recent months. Our calculations also showed that BTU isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Paul Singer ELLIOTT MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the fresh hedge fund action regarding Peabody Energy Corporation (NYSE:BTU).

How are hedge funds trading Peabody Energy Corporation (NYSE:BTU)?

At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BTU over the last 16 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with BTU Positions

According to Insider Monkey’s hedge fund database, Paul Singer’s Elliott Management has the most valuable position in Peabody Energy Corporation (NYSE:BTU), worth close to $678.8 million, comprising 4.5% of its total 13F portfolio. Sitting at the No. 2 spot is Jon Bauer of Contrarian Capital, with a $207.8 million position; the fund has 19.8% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise William B. Gray’s Orbis Investment Management, Renaissance Technologies and Kerr Neilson’s Platinum Asset Management.

Consequently, some big names were leading the bulls’ herd. Cobalt Capital Management, managed by Wayne Cooperman, created the largest position in Peabody Energy Corporation (NYSE:BTU). Cobalt Capital Management had $3.4 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, David Harding’s Winton Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Peabody Energy Corporation (NYSE:BTU) but similarly valued. We will take a look at Itron, Inc. (NASDAQ:ITRI), Yamana Gold Inc. (NYSE:AUY), American Equity Investment Life Holding Company (NYSE:AEL), and CONMED Corporation (NASDAQ:CNMD). All of these stocks’ market caps are similar to BTU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITRI 22 483411 7
AUY 18 120611 0
AEL 17 89771 0
CNMD 19 238590 -2
Average 19 233096 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $1271 million in BTU’s case. Itron, Inc. (NASDAQ:ITRI) is the most popular stock in this table. On the other hand American Equity Investment Life Holding Company (NYSE:AEL) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BTU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -38.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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