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Peabody Energy Corporation (BTU): Are Hedge Funds Right About This Stock?

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In this article you are going to find out whether hedge funds think Peabody Energy Corporation (NYSE:BTU) is a good investment 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.

Peabody Energy Corporation (NYSE:BTU) was in 29 hedge funds' portfolios at the end of September. The all time high for this statistic is 36. BTU investors should pay attention to an increase in hedge fund sentiment in recent months. There were 18 hedge funds in our database with BTU holdings at the end of June. Our calculations also showed that BTU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind let's go over the new hedge fund action regarding Peabody Energy Corporation (NYSE:BTU).

Scott Bessent of Key Square Capital Management
Scott Bessent of Key Square Capital Management

Scott Bessent of Key Square Capital Management

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

At Q3's end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 61% from the second quarter of 2021. By comparison, 20 hedge funds held shares or bullish call options in BTU a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Elliott Investment Management was the largest shareholder of Peabody Energy Corporation (NYSE:BTU), with a stake worth $401.2 million reported as of the end of September. Trailing Elliott Investment Management was Renaissance Technologies, which amassed a stake valued at $74.7 million. Millennium Management, Two Sigma Advisors, and Hosking Partners 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 Key Square Capital Management allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 3.81% of its 13F portfolio. Elliott Investment Management is also relatively very bullish on the stock, earmarking 2.88 percent of its 13F equity portfolio to BTU.

As aggregate interest increased, key hedge funds were breaking ground themselves. Key Square Capital Management, managed by Scott Bessent, initiated the largest position in Peabody Energy Corporation (NYSE:BTU). Key Square Capital Management had $10.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $4.9 million investment in the stock during the quarter. The following funds were also among the new BTU investors: Steve Cohen's Point72 Asset Management, Louis Bacon's Moore Global Investments, and Dmitry Balyasny's Balyasny Asset Management.

Let's also examine hedge fund activity in other stocks similar to Peabody Energy Corporation (NYSE:BTU). We will take a look at The Beachbody Company Inc. (NYSE:BODY), CBIZ, Inc. (NYSE:CBZ), Patterson-UTI Energy, Inc. (NASDAQ:PTEN), Stewart Information Services Corp (NYSE:STC), Alexander & Baldwin Inc (NYSE:ALEX), Establishment Labs Holdings Inc. (NASDAQ:ESTA), and Torrid Holdings Inc. (NYSE:CURV). This group of stocks' market values are similar to BTU's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BODY,13,26485,0 CBZ,16,248276,1 PTEN,20,140150,2 STC,20,132960,3 ALEX,9,68151,-5 ESTA,18,300680,1 CURV,11,24616,11 Average,15.3,134474,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.3 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $639 million in BTU's case. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is the most popular stock in this table. On the other hand Alexander & Baldwin Inc (NYSE:ALEX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our overall hedge fund sentiment score for BTU is 84.2. 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. 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately BTU wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BTU were disappointed as the stock returned -32.7% since the end of the third quarter (through 11/30) 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 since 2019.

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