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Was The Smart Money Right About Piling Into Dominion Energy Inc. (D)?

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·6 min read
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In this article we will analyze whether Dominion Energy Inc. (NYSE:D) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Dominion Energy Inc. (NYSE:D) has experienced an increase in activity from the world's largest hedge funds in recent months. Dominion Energy Inc. (NYSE:D) was in 47 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 45. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that D isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by 124 percentage points since March 2017 (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.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 glance at the fresh hedge fund action regarding Dominion Energy Inc. (NYSE:D).

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

At the end of December, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the third quarter of 2020. By comparison, 37 hedge funds held shares or bullish call options in D a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Israel Englander's Millennium Management has the biggest position in Dominion Energy Inc. (NYSE:D), worth close to $213.1 million, corresponding to 0.2% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $197 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions contain D. E. Shaw's D E Shaw, Ric Dillon's Diamond Hill Capital and Phill Gross and Robert Atchinson's Adage Capital Management. In terms of the portfolio weights assigned to each position Covalis Capital allocated the biggest weight to Dominion Energy Inc. (NYSE:D), around 9.72% of its 13F portfolio. Coann Capital is also relatively very bullish on the stock, designating 9.08 percent of its 13F equity portfolio to D.

Now, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Dominion Energy Inc. (NYSE:D). Point72 Asset Management had $83.6 million invested in the company at the end of the quarter. Zilvinas Mecelis's Covalis Capital also made a $26.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Davis's Coann Capital, Paul Marshall and Ian Wace's Marshall Wace LLP, and Andrew Weiss's Weiss Asset Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Dominion Energy Inc. (NYSE:D) but similarly valued. These stocks are Air Products & Chemicals, Inc. (NYSE:APD), Norfolk Southern Corp. (NYSE:NSC), Spotify Technology S.A. (NYSE:SPOT), General Motors Company (NYSE:GM), Marsh & McLennan Companies, Inc. (NYSE:MMC), VMware, Inc. (NYSE:VMW), and Atlassian Corporation Plc (NASDAQ:TEAM). All of these stocks' market caps resemble D's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APD,50,1282433,1 NSC,44,783686,-3 SPOT,48,2688846,4 GM,70,6332871,10 MMC,43,1747012,8 VMW,35,405815,4 TEAM,69,4932963,21 Average,51.3,2596232,6.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.3 hedge funds with bullish positions and the average amount invested in these stocks was $2596 million. That figure was $1507 million in D's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 35 bullish hedge fund positions. Dominion Energy Inc. (NYSE:D) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for D is 57.1. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and surpassed the market again by 1.6 percentage points. Unfortunately D wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); D investors were disappointed as the stock returned 7.2% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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