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Hedge Funds Done Buying NorthWestern Corporation (NWE) For Now

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Abigail Fisher
·6 min read
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In this article we will take a look at whether hedge funds think NorthWestern Corporation (NYSE:NWE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

NorthWestern Corporation (NYSE:NWE) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of the first quarter of 2020. At the end of this article we will also compare NWE to other stocks including Cameco Corporation (NYSE:CCJ), Pan American Silver Corp. (NASDAQ:PAAS), and American States Water Co (NYSE:AWR) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_375529" align="aligncenter" width="396"]

Mario Gabelli of GAMCO Investors[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the fresh hedge fund action surrounding NorthWestern Corporation (NYSE:NWE).

How have hedgies been trading NorthWestern Corporation (NYSE:NWE)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in NWE a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, AQR Capital Management held the most valuable stake in NorthWestern Corporation (NYSE:NWE), which was worth $61.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $20.6 million worth of shares. GAMCO Investors, GLG Partners, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to NorthWestern Corporation (NYSE:NWE), around 1.03% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to NWE.

Due to the fact that NorthWestern Corporation (NYSE:NWE) has witnessed a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedge funds that elected to cut their positions entirely last quarter. Interestingly, Michael Gelband's ExodusPoint Capital said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $6.2 million in stock, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital was right behind this move, as the fund dumped about $1.2 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to NorthWestern Corporation (NYSE:NWE). These stocks are Cameco Corporation (NYSE:CCJ), Pan American Silver Corp. (NASDAQ:PAAS), American States Water Co (NYSE:AWR), and AerCap Holdings N.V. (NYSE:AER). All of these stocks' market caps are similar to NWE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCJ,24,267635,-4 PAAS,30,341386,0 AWR,19,50907,-2 AER,32,616402,-4 Average,26.25,319083,-2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $319 million. That figure was $126 million in NWE's case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand American States Water Co (NYSE:AWR) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks NorthWestern Corporation (NYSE:NWE) is even less popular than AWR. Hedge funds dodged a bullet by taking a bearish stance towards NWE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. Unfortunately NWE wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NWE investors were disappointed as the stock returned -7.8% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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

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