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Is PNM Resources, Inc. (NYSE:PNM) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
PNM Resources, Inc. (NYSE:PNM) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistic is 30. PNM has seen an increase in support from the world's most elite money managers of late. There were 26 hedge funds in our database with PNM holdings at the end of March. Our calculations also showed that PNM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 S&P 500 ETFs by 79 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 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.
Clint Carlson of Carlson Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to analyze the key hedge fund action encompassing PNM Resources, Inc. (NYSE:PNM).
Do Hedge Funds Think PNM Is A Good Stock To Buy Now?
At second quarter's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in PNM a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in PNM Resources, Inc. (NYSE:PNM). Millennium Management has a $140.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Magnetar Capital, led by Alec Litowitz and Ross Laser, holding a $136.2 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass Mario Gabelli's GAMCO Investors, D. E. Shaw's D E Shaw and Clint Carlson's Carlson Capital. In terms of the portfolio weights assigned to each position Ovata Capital Management allocated the biggest weight to PNM Resources, Inc. (NYSE:PNM), around 3.21% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, earmarking 2.59 percent of its 13F equity portfolio to PNM.
Now, key hedge funds were leading the bulls' herd. Melqart Asset Management, managed by Michel Massoud, created the biggest position in PNM Resources, Inc. (NYSE:PNM). Melqart Asset Management had $53.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $25.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson's Adage Capital Management, Robert Emil Zoellner's Alpine Associates, and Wayne Yu's BCK Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PNM Resources, Inc. (NYSE:PNM) but similarly valued. These stocks are Range Resources Corp. (NYSE:RRC), Safehold Inc. (NYSE:SAFE), Cardlytics, Inc. (NASDAQ:CDLX), HUYA Inc. (NYSE:HUYA), Grand Canyon Education Inc (NASDAQ:LOPE), National Vision Holdings, Inc. (NASDAQ:EYE), and Madison Square Garden Sports Corp. (NYSE:MSGS). All of these stocks' market caps match PNM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RRC,25,493861,-1 SAFE,6,7173,-2 CDLX,29,1182760,-9 HUYA,11,89812,-2 LOPE,25,173874,1 EYE,19,356510,-5 MSGS,37,954653,-10 Average,21.7,465520,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $466 million. That figure was $715 million in PNM's case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 6 bullish hedge fund positions. PNM Resources, Inc. (NYSE:PNM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNM is 66.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on PNM as the stock returned 2.4% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.