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The Southern Company (SO): Hedge Funds Are Snapping Up

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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards The Southern Company (NYSE:SO) changed recently.

Is The Southern Company (NYSE:SO) an outstanding stock to buy now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets increased by 3 in recent months. The Southern Company (NYSE:SO) was in 35 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that SO isn't among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Stuart Zimmer Zimmer Partners
Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey, we scour multiple sources to uncover 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 battery 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. Now let's view the key hedge fund action regarding The Southern Company (NYSE:SO).

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

At Q1's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SO over the last 23 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in The Southern Company (NYSE:SO) was held by Two Sigma Advisors, which reported holding $106.9 million worth of stock at the end of December. It was followed by Zimmer Partners with a $83.1 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Te Ahumairangi Investment Management allocated the biggest weight to The Southern Company (NYSE:SO), around 1.3% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 1.13 percent of its 13F equity portfolio to SO.

Now, some big names were leading the bulls' herd. Zimmer Partners, managed by Stuart J. Zimmer, assembled the largest position in The Southern Company (NYSE:SO). Zimmer Partners had $83.1 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $10.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Andrew Weiss's Weiss Asset Management, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and Alec Litowitz and Ross Laser's Magnetar Capital.

Let's go over hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). We will take a look at Snowflake Inc (NYSE:SNOW), HCA Healthcare Inc (NYSE:HCA), Equinor ASA (NYSE:EQNR), VMware, Inc. (NYSE:VMW), Intercontinental Exchange Inc (NYSE:ICE), Air Products & Chemicals, Inc. (NYSE:APD), and Marsh & McLennan Companies, Inc. (NYSE:MMC). This group of stocks' market caps are similar to SO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNOW,71,12965065,17 HCA,62,3245183,-11 EQNR,8,99733,-10 VMW,25,549319,-10 ICE,58,3328612,5 APD,32,586835,-18 MMC,37,2143915,-6 Average,41.9,3274095,-4.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $3274 million. That figure was $464 million in SO's case. Snowflake Inc (NYSE:SNOW) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 8 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 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 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 19.3% in 2021 through June 25th and surpassed the market again by 4.8 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% since the end of March (through 6/25) 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.