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Hedge Funds Are Crazy About NiSource Inc. (NI)

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At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not NiSource Inc. (NYSE:NI) makes for a good investment right now.

NiSource Inc. (NYSE:NI) has experienced an increase in enthusiasm from smart money recently. NiSource Inc. (NYSE:NI) was in 36 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NI 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.

Stuart Zimmer Zimmer Partners
Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. With all of this in mind we're going to go over the recent hedge fund action surrounding NiSource Inc. (NYSE:NI).

Do Hedge Funds Think NI Is A Good Stock To Buy Now?

At second quarter's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NI over the last 24 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is NI A Good Stock To Buy?
Is NI A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the largest position in NiSource Inc. (NYSE:NI), worth close to $115.6 million, corresponding to less than 0.1%% of its total 13F portfolio. On Citadel Investment Group's heels is Zimmer Partners, led by Stuart J. Zimmer, holding a $82.3 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Other peers with similar optimism consist of Israel Englander's Millennium Management, Renaissance Technologies and Michael A. Price and Amos Meron's Empyrean Capital Partners. In terms of the portfolio weights assigned to each position Coann Capital allocated the biggest weight to NiSource Inc. (NYSE:NI), around 4.06% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to NI.

As one would reasonably expect, some big names have been driving this bullishness. Zimmer Partners, managed by Stuart J. Zimmer, initiated the most valuable position in NiSource Inc. (NYSE:NI). Zimmer Partners had $82.3 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $45 million position during the quarter. The following funds were also among the new NI investors: Michael A. Price and Amos Meron's Empyrean Capital Partners, Steve Cohen's Point72 Asset Management, and Franklin Parlamis's Aequim Alternative Investments.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as NiSource Inc. (NYSE:NI) but similarly valued. We will take a look at Western Alliance Bancorporation (NYSE:WAL), Upstart Holdings, Inc. (NASDAQ:UPST), Americold Realty Trust (NYSE:COLD), First Horizon National Corporation (NYSE:FHN), Denali Therapeutics Inc. (NASDAQ:DNLI), Braskem SA (NYSE:BAK), and Arrival (NASDAQ:ARVL). This group of stocks' market values are closest to NI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WAL,28,188070,5 UPST,21,2135453,8 COLD,16,530325,0 FHN,27,151649,0 DNLI,22,300703,-4 BAK,6,16591,-2 ARVL,17,117875,3 Average,19.6,491524,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $492 million. That figure was $560 million in NI's case. Western Alliance Bancorporation (NYSE:WAL) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks NiSource Inc. (NYSE:NI) is more popular among hedge funds. Our overall hedge fund sentiment score for NI is 90. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately NI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NI were disappointed as the stock returned 0.2% since the end of the second quarter (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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