Is The Southern Company (NYSE:SO) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
The Southern Company (NYSE:SO) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. Our calculations also showed that SO isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the fresh hedge fund action encompassing The Southern Company (NYSE:SO).
How have hedgies been trading The Southern Company (NYSE:SO)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the first quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in SO a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
Among these funds, Renaissance Technologies held the most valuable stake in The Southern Company (NYSE:SO), which was worth $506.4 million at the end of the second quarter. On the second spot was Zimmer Partners which amassed $66 million worth of shares. Moreover, AQR Capital Management, GLG Partners, and D E Shaw were also bullish on The Southern Company (NYSE:SO), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Zimmer Partners, managed by Stuart J. Zimmer, assembled the most outsized position in The Southern Company (NYSE:SO). Zimmer Partners had $66 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $42.7 million position during the quarter. The following funds were also among the new SO investors: Jeffrey Talpins's Element Capital Management, John Horseman's Horseman Capital Management, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Southern Company (NYSE:SO) but similarly valued. We will take a look at S&P Global Inc. (NYSE:SPGI), Prudential Public Limited Company (NYSE:PUK), Ecolab Inc. (NYSE:ECL), and The Blackstone Group Inc. (NYSE:BX). This group of stocks' market values match SO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPGI,58,4351436,4 PUK,5,40016,-1 ECL,27,2047954,0 BX,30,519284,-4 Average,30,1739673,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1740 million. That figure was $836 million in SO's case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. The Southern Company (NYSE:SO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SO as the stock returned 13% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.