We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Quanta Services Inc (NYSE:PWR)? The smart money sentiment can provide an answer to this question.
Is Quanta Services Inc (NYSE:PWR) a buy, sell, or hold? Hedge funds are getting more bullish. The number of long hedge fund bets improved by 12 in recent months. Our calculations also showed that PWR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To the average investor there are dozens of gauges stock market investors have at their disposal to size up their holdings. Two of the most useful gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top investment managers can outclass their index-focused peers by a solid amount (see the details here).
[caption id="attachment_193032" align="aligncenter" width="399"] William Harnisch of Peconic Partners LLC[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a glance at the fresh hedge fund action regarding Quanta Services Inc (NYSE:PWR).
What have hedge funds been doing with Quanta Services Inc (NYSE:PWR)?
Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the third quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in PWR a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Peconic Partners LLC held the most valuable stake in Quanta Services Inc (NYSE:PWR), which was worth $221.5 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $164.5 million worth of shares. Citadel Investment Group, Greenhaven Associates, 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 Peconic Partners LLC allocated the biggest weight to Quanta Services Inc (NYSE:PWR), around 45.18% of its 13F portfolio. Brightlight Capital is also relatively very bullish on the stock, dishing out 12.4 percent of its 13F equity portfolio to PWR.
Consequently, specific money managers were leading the bulls' herd. Brightlight Capital, managed by Vadim Rubinchik, initiated the most outsized position in Quanta Services Inc (NYSE:PWR). Brightlight Capital had $16.4 million invested in the company at the end of the quarter. Andrew Byington's Appian Way Asset Management also made a $10 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, Paul Marshall and Ian Wace's Marshall Wace LLP, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's check out hedge fund activity in other stocks similar to Quanta Services Inc (NYSE:PWR). We will take a look at Zynga Inc (NASDAQ:ZNGA), Capri Holdings Limited (NYSE:CPRI), SolarWinds Corporation (NYSE:SWI), and Choice Hotels International, Inc. (NYSE:CHH). This group of stocks' market values resemble PWR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNGA,48,953368,8 CPRI,40,1033626,-1 SWI,15,2527306,2 CHH,16,124873,-6 Average,29.75,1159793,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1160 million. That figure was $959 million in PWR's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand SolarWinds Corporation (NYSE:SWI) is the least popular one with only 15 bullish hedge fund positions. Quanta Services Inc (NYSE:PWR) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PWR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PWR were disappointed as the stock returned -25.3% during the same time period 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.