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The Southern Company (SO) Fell Out Of Favor With Hedge Funds

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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards The Southern Company (NYSE:SO) to find out whether there were any major changes in hedge funds' views.

The Southern Company (NYSE:SO) has experienced a decrease in enthusiasm from smart money in recent months. The Southern Company (NYSE:SO) was in 30 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 38. There were 37 hedge funds in our database with SO holdings at the end of June. Our calculations also showed that SO 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 we're going to take a peek at the key hedge fund action surrounding The Southern Company (NYSE:SO).

Stuart Zimmer Zimmer Partners
Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

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

Heading into the fourth quarter of 2021, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards SO over the last 25 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.

Among these funds, Zimmer Partners held the most valuable stake in The Southern Company (NYSE:SO), which was worth $203.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $151.6 million worth of shares. Citadel Investment Group, Adage 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 Coann Capital allocated the biggest weight to The Southern Company (NYSE:SO), around 7.68% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 3.2 percent of its 13F equity portfolio to SO.

Because The Southern Company (NYSE:SO) has witnessed declining sentiment from the smart money, we can see that there was a specific group of hedge funds who sold off their positions entirely heading into Q4. Intriguingly, John Overdeck and David Siegel's Two Sigma Advisors dropped the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at about $15.2 million in stock. Alec Litowitz and Ross Laser's fund, Magnetar Capital, also said goodbye to its stock, about $3.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 7 funds heading into Q4.

Let's check out hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). These stocks are ICICI Bank Limited (NYSE:IBN), Illinois Tool Works Inc. (NYSE:ITW), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Intercontinental Exchange Inc (NYSE:ICE), Bank of Montreal (NYSE:BMO), Aon plc (NYSE:AON), and Colgate-Palmolive Company (NYSE:CL). 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 IBN,28,2621460,0 ITW,39,422271,-6 REGN,44,1318026,-4 ICE,48,2832226,1 BMO,12,142342,0 AON,47,6005008,-21 CL,54,2577652,-4 Average,38.9,2274141,-4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $2274 million. That figure was $676 million in SO's case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 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 overall hedge fund sentiment score for SO is 43.1. 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 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately SO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SO investors were disappointed as the stock returned -0.4% since the end of September (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 in 2021.

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