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Kinder Morgan Inc (KMI): Hedge Funds In Wait-and-See Mode

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·6 min read
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  • KMI
  • ^GSPC

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Kinder Morgan Inc (NYSE:KMI).

Hedge fund interest in Kinder Morgan Inc (NYSE:KMI) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that KMI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as DuPont de Nemours Inc (NYSE:DD), Electronic Arts Inc. (NASDAQ:EA), and American International Group Inc (NYSE:AIG) to gather more data points.

In the eyes of most shareholders, hedge funds are perceived as slow, old investment vehicles of years past. While there are greater than 8000 funds trading at present, Our experts look at the aristocrats of this group, around 850 funds. These money managers oversee the lion's share of all hedge funds' total asset base, and by shadowing their finest investments, Insider Monkey has formulated various investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

David Abrams
David Abrams

David Abrams of Abrams Capital Management

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. Keeping this in mind let's take a look at the latest hedge fund action encompassing Kinder Morgan Inc (NYSE:KMI).

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

At Q2's end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KMI over the last 24 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.

More specifically, FPR Partners was the largest shareholder of Kinder Morgan Inc (NYSE:KMI), with a stake worth $359.7 million reported as of the end of June. Trailing FPR Partners was Abrams Capital Management, which amassed a stake valued at $227.4 million. First Pacific Advisors LLC, AQR Capital Management, and D E Shaw 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 FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 9.27% of its 13F portfolio. Quaker Capital Investments is also relatively very bullish on the stock, dishing out 6.24 percent of its 13F equity portfolio to KMI.

Since Kinder Morgan Inc (NYSE:KMI) has witnessed falling interest from the smart money, we can see that there was a specific group of fund managers who were dropping their entire stakes heading into Q3. Intriguingly, Benjamin A. Smith's Laurion Capital Management said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, comprising about $16 million in stock, and Peter Galgay's Amitell Capital was right behind this move, as the fund said goodbye to about $4.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). These stocks are DuPont de Nemours Inc (NYSE:DD), Electronic Arts Inc. (NASDAQ:EA), American International Group Inc (NYSE:AIG), Barclays PLC (NYSE:BCS), Microchip Technology Incorporated (NASDAQ:MCHP), Amphenol Corporation (NYSE:APH), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). This group of stocks' market values are similar to KMI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DD,57,1653192,8 EA,56,2022602,12 AIG,39,2744991,6 BCS,11,119955,1 MCHP,50,1121112,8 APH,39,1203614,-3 ALXN,69,10090913,-8 Average,45.9,2708054,3.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.9 hedge funds with bullish positions and the average amount invested in these stocks was $2708 million. That figure was $1033 million in KMI's case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 11 bullish hedge fund positions. Kinder Morgan Inc (NYSE:KMI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KMI is 44.1. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market again by 4.4 percentage points. Unfortunately KMI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); KMI investors were disappointed as the stock returned -1.2% since the end of June (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 in 2021.

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