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Were Hedge Funds Right About NRG Energy Inc (NRG)?

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of NRG Energy Inc (NYSE:NRG) based on that data and determine whether they were really smart about the stock.

NRG Energy Inc (NYSE:NRG) was in 34 hedge funds' portfolios at the end of September. The all time high for this statistic is 50. NRG has seen an increase in hedge fund sentiment in recent months. There were 33 hedge funds in our database with NRG positions at the end of the second quarter. Our calculations also showed that NRG 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. Now we're going to take a look at the latest hedge fund action regarding NRG Energy Inc (NYSE:NRG).

Michael Platt Bluecrest Capital Management
Michael Platt Bluecrest Capital Management

Michael Platt of BlueCrest Capital Mgmt.

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

At Q3's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in NRG a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in NRG Energy Inc (NYSE:NRG) was held by Pzena Investment Management, which reported holding $673 million worth of stock at the end of September. It was followed by Permian Investment Partners with a $308 million position. Other investors bullish on the company included Lyrical Asset Management, BlueCrest Capital Mgmt., and Steadfast Capital Management. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to NRG Energy Inc (NYSE:NRG), around 30.57% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, designating 5.03 percent of its 13F equity portfolio to NRG.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in NRG Energy Inc (NYSE:NRG). Balyasny Asset Management had $68.8 million invested in the company at the end of the quarter. Alex Duran and Scott Hendrickson's Permian Investment Partners also made a $36.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Matthew Hulsizer's PEAK6 Capital Management, and D. E. Shaw's D E Shaw.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NRG Energy Inc (NYSE:NRG) but similarly valued. These stocks are Bausch Health Companies Inc. (NYSE:BHC), TD SYNNEX Corporation (NYSE:SNX), Deckers Outdoor Corp (NYSE:DECK), Five Below Inc (NASDAQ:FIVE), Cleveland-Cliffs Inc (NYSE:CLF), Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), and Guidewire Software Inc (NYSE:GWRE). This group of stocks' market caps resemble NRG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BHC,39,3840623,-6 SNX,24,596081,4 DECK,48,1213165,4 FIVE,40,996155,-2 CLF,35,682055,-9 NCLH,36,502017,-7 GWRE,26,2005849,-1 Average,35.4,1405135,-2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1405 million. That figure was $1992 million in NRG's case. Deckers Outdoor Corp (NYSE:DECK) is the most popular stock in this table. On the other hand TD SYNNEX Corporation (NYSE:SNX) is the least popular one with only 24 bullish hedge fund positions. NRG Energy Inc (NYSE:NRG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NRG is 47.2. 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 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on NRG as the stock returned -0.5% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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