Is CenterPoint Energy, Inc. (NYSE:CNP) 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.
Is CenterPoint Energy, Inc. (NYSE:CNP) a great investment now? Prominent investors are turning less bullish. The number of long hedge fund bets decreased by 2 lately. Our calculations also showed that CNP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CNP was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 29 hedge funds in our database with CNP positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_255014" align="aligncenter" width="600"] Clint Carlson of Carlson Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the key hedge fund action regarding CenterPoint Energy, Inc. (NYSE:CNP).
How have hedgies been trading CenterPoint Energy, Inc. (NYSE:CNP)?
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. By comparison, 38 hedge funds held shares or bullish call options in CNP a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in CenterPoint Energy, Inc. (NYSE:CNP) was held by Citadel Investment Group, which reported holding $306.2 million worth of stock at the end of September. It was followed by Levin Easterly Partners with a $206.5 million position. Other investors bullish on the company included Adage Capital Management, Renaissance Technologies, and Millennium Management. In terms of the portfolio weights assigned to each position Levin Easterly Partners allocated the biggest weight to CenterPoint Energy, Inc. (NYSE:CNP), around 5.8% of its portfolio. Aequim Alternative Investments is also relatively very bullish on the stock, setting aside 2.51 percent of its 13F equity portfolio to CNP.
Judging by the fact that CenterPoint Energy, Inc. (NYSE:CNP) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there is a sect of fund managers who sold off their full holdings last quarter. At the top of the heap, Stuart J. Zimmer's Zimmer Partners dropped the largest stake of all the hedgies followed by Insider Monkey, valued at an estimated $138.4 million in stock. Jonathan Barrett and Paul Segal's fund, Luminus Management, also dumped its stock, about $52.2 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks similar to CenterPoint Energy, Inc. (NYSE:CNP). We will take a look at Magellan Midstream Partners, L.P. (NYSE:MMP), Celanese Corporation (NYSE:CE), ViacomCBS Inc. (NYSE:CBS), and POSCO (NYSE:PKX). This group of stocks' market values match CNP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMP,12,55553,2 CE,18,944524,-2 CBS,49,1742539,-1 PKX,9,46468,-3 Average,22,697271,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $697 million. That figure was $1090 million in CNP's case. ViacomCBS Inc. (NYSE:CBS) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 9 bullish hedge fund positions. CenterPoint Energy, Inc. (NYSE:CNP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CNP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CNP were disappointed as the stock returned -17.7% during the fourth quarter (through the end of November) 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.