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Hedge Funds Are Way More Bullish On PG&E Corp Than These Stocks

Reymerlyn Martin

Is PG&E Corporation (NYSE:PCG) 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.

Is PG&E Corporation (NYSE:PCG) worth your attention right now? Hedge funds are turning less bullish. The number of bullish hedge fund bets fell by 3 recently. Our calculations also showed that PCG isn't among the 30 most popular stocks among hedge funds. Below, we will compare PCG against similarly valued stocks such as NewMarket Corporation (NYSE:NEU), Moderna, Inc. (NASDAQ:MRNA), JBG SMITH Properties (NYSE:JBGS), and Cree, Inc. (NASDAQ:CREE) to put things in context.

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 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.

[caption id="attachment_256532" align="aligncenter" width="225"] David Abrams of Abrams Capital Management[/caption]

Abrams Capital Management

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. Let's view the new hedge fund action regarding PG&E Corporation (NYSE:PCG).

What does smart money think about PG&E Corporation (NYSE:PCG)?

At the end of the third quarter, a total of 64 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PCG over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PCG_nov2019

The largest stake in PG&E Corporation (NYSE:PCG) was held by Abrams Capital Management, which reported holding $250 million worth of stock at the end of September. It was followed by Anchorage Advisors with a $249.1 million position. Other investors bullish on the company included Baupost Group, Appaloosa Management, and Silver Point Capital. In terms of the portfolio weights assigned to each position Blue Mountain Capital allocated the biggest weight to PG&E Corporation (NYSE:PCG), around 46.83% of its portfolio. Caspian Capital Partners is also relatively very bullish on the stock, designating 26.9 percent of its 13F equity portfolio to PCG.

Seeing as PG&E Corporation (NYSE:PCG) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of money managers who sold off their full holdings last quarter. Interestingly, James Dinan's York Capital Management sold off the largest investment of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $82.7 million in stock, and Stanley Druckenmiller's Duquesne Capital was right behind this move, as the fund sold off about $69.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PG&E Corporation (NYSE:PCG) but similarly valued. These stocks are NewMarket Corporation (NYSE:NEU), Moderna, Inc. (NASDAQ:MRNA), JBG SMITH Properties (NYSE:JBGS), and Cree, Inc. (NASDAQ:CREE). This group of stocks' market values match PCG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEU,27,193660,7 MRNA,8,204933,-10 JBGS,19,235290,2 CREE,22,357481,-2 Average,19,247841,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $2847 million in PCG's case. NewMarket Corporation (NYSE:NEU) is the most popular stock in this table. On the other hand Moderna, Inc. (NASDAQ:MRNA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks PG&E Corporation (NYSE:PCG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately PCG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PCG were disappointed as the stock returned -26.9% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.

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

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