How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Atmos Energy Corporation (NYSE:ATO).
Atmos Energy Corporation (NYSE:ATO) was in 20 hedge funds' portfolios at the end of March. ATO has seen a decrease in support from the world's most elite money managers of late. There were 25 hedge funds in our database with ATO holdings at the end of the previous quarter. Our calculations also showed that ATO isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to analyze the recent hedge fund action encompassing Atmos Energy Corporation (NYSE:ATO).
Hedge fund activity in Atmos Energy Corporation (NYSE:ATO)
At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in ATO over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Atmos Energy Corporation (NYSE:ATO) was held by Citadel Investment Group, which reported holding $59.9 million worth of stock at the end of March. It was followed by Millennium Management with a $57.8 million position. Other investors bullish on the company included AQR Capital Management, Carlson Capital, and Luminus Management.
Since Atmos Energy Corporation (NYSE:ATO) has experienced falling interest from the aggregate hedge fund industry, logic holds that there were a few hedge funds that decided to sell off their positions entirely last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management dropped the biggest stake of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $46.4 million in stock. Jeffrey Talpins's fund, Element Capital Management, also sold off its stock, about $40.9 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Atmos Energy Corporation (NYSE:ATO). We will take a look at Broadridge Financial Solutions, Inc. (NYSE:BR), Lincoln National Corporation (NYSE:LNC), The AES Corporation (NYSE:AES), and Wabtec Corporation (NYSE:WAB). This group of stocks' market valuations are similar to ATO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BR,26,396752,4 LNC,40,563951,7 AES,24,525751,-5 WAB,36,783264,26 Average,31.5,567430,8 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $567 million. That figure was $292 million in ATO's case. Lincoln National Corporation (NYSE:LNC) is the most popular stock in this table. On the other hand The AES Corporation (NYSE:AES) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Atmos Energy Corporation (NYSE:ATO) is even less popular than AES. Hedge funds dodged a bullet by taking a bearish stance towards ATO. Our calculations showed that the top 15 most popular hedge fund stocks returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ATO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ATO investors were disappointed as the stock returned -1.7% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.