Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding New Jersey Resources Corp (NYSE:NJR).
Is New Jersey Resources Corp (NYSE:NJR) the right pick for your portfolio? Investors who are in the know are getting more bullish. The number of bullish hedge fund positions went up by 4 lately. Our calculations also showed that NJR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255014" align="aligncenter" width="400"] Clint Carlson of Carlson Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's go over the recent hedge fund action encompassing New Jersey Resources Corp (NYSE:NJR).
How are hedge funds trading New Jersey Resources Corp (NYSE:NJR)?
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NJR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in New Jersey Resources Corp (NYSE:NJR) was held by Carlson Capital, which reported holding $33.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $28.8 million position. Other investors bullish on the company included ExodusPoint Capital, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Pinz Capital allocated the biggest weight to New Jersey Resources Corp (NYSE:NJR), around 1.53% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to NJR.
As industrywide interest jumped, some big names were leading the bulls' herd. Carlson Capital, managed by Clint Carlson, initiated the biggest position in New Jersey Resources Corp (NYSE:NJR). Carlson Capital had $33.4 million invested in the company at the end of the quarter. Matthew L Pinz's Pinz Capital also initiated a $4.2 million position during the quarter. The other funds with brand new NJR positions are Hoon Kim's Quantinno Capital, Benjamin A. Smith's Laurion Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as New Jersey Resources Corp (NYSE:NJR) but similarly valued. We will take a look at Colfax Corporation (NYSE:CFX), Avnet, Inc. (NYSE:AVT), Perspecta Inc. (NYSE:PRSP), and YY Inc (NASDAQ:YY). This group of stocks' market caps are closest to NJR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFX,43,904378,12 AVT,33,856160,2 PRSP,46,598714,3 YY,23,143195,6 Average,36.25,625612,5.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $626 million. That figure was $119 million in NJR's case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand YY Inc (NASDAQ:YY) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks New Jersey Resources Corp (NYSE:NJR) is even less popular than YY. Hedge funds dodged a bullet by taking a bearish stance towards NJR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately NJR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NJR investors were disappointed as the stock returned -32.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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