Is Black Hills Corporation (NYSE:BKH) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Black Hills Corporation (NYSE:BKH) has seen a decrease in hedge fund sentiment recently. BKH was in 17 hedge funds' portfolios at the end of December. There were 19 hedge funds in our database with BKH positions at the end of the previous quarter. Our calculations also showed that BKH isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the new hedge fund action encompassing Black Hills Corporation (NYSE:BKH).
How have hedgies been trading Black Hills Corporation (NYSE:BKH)?
Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2018. On the other hand, there were a total of 15 hedge funds with a bullish position in BKH a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Black Hills Corporation (NYSE:BKH), which was worth $34.2 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $19.6 million worth of shares. Moreover, Adage Capital Management, GLG Partners, and Huber Capital Management were also bullish on Black Hills Corporation (NYSE:BKH), allocating a large percentage of their portfolios to this stock.
Since Black Hills Corporation (NYSE:BKH) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers who were dropping their positions entirely last quarter. At the top of the heap, D. E. Shaw's D E Shaw said goodbye to the largest stake of the 700 funds monitored by Insider Monkey, totaling about $50.1 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund dropped about $18.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Black Hills Corporation (NYSE:BKH) but similarly valued. These stocks are Pegasystems Inc. (NASDAQ:PEGA), Spire Inc. (NYSE:SR), Methanex Corporation (NASDAQ:MEOH), and Wintrust Financial Corporation (NASDAQ:WTFC). This group of stocks' market valuations match BKH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEGA,19,527867,-3 SR,13,90505,-2 MEOH,21,263929,0 WTFC,24,373072,0 Average,19.25,313843,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $114 million in BKH's case. Wintrust Financial Corporation (NASDAQ:WTFC) is the most popular stock in this table. On the other hand Spire Inc. (NYSE:SR) is the least popular one with only 13 bullish hedge fund positions. Black Hills Corporation (NYSE:BKH) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately BKH wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); BKH investors were disappointed as the stock returned 13.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.