While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Sempra Energy (NYSE:SRE).
Is SRE stock a buy? Sempra Energy (NYSE:SRE) investors should pay attention to an increase in hedge fund sentiment lately. Sempra Energy (NYSE:SRE) was in 33 hedge funds' portfolios at the end of December. The all time high for this statistic is 35. There were 32 hedge funds in our database with SRE holdings at the end of September. Our calculations also showed that SRE 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).
Zilvinas Mecelis of Covalis Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 website. Keeping this in mind let's take a look at the key hedge fund action encompassing Sempra Energy (NYSE:SRE).
Do Hedge Funds Think SRE Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in SRE over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Sempra Energy (NYSE:SRE), with a stake worth $264.6 million reported as of the end of December. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $144.1 million. Adage Capital Management, Point72 Asset 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 Sempra Energy (NYSE:SRE), around 9.16% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, earmarking 6.74 percent of its 13F equity portfolio to SRE.
As one would reasonably expect, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in Sempra Energy (NYSE:SRE). Point72 Asset Management had $67.3 million invested in the company at the end of the quarter. Zilvinas Mecelis's Covalis Capital also made a $18.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Davis's Coann Capital, Mark R. Freeman's Socorro Asset Management, and Charles Davidson and Joseph Jacobs's Wexford Capital.
Let's now take a look at hedge fund activity in other stocks similar to Sempra Energy (NYSE:SRE). We will take a look at Eni SpA (NYSE:E), Fiat Chrysler Automobiles NV (NYSE:FCAU), CoStar Group Inc (NASDAQ:CSGP), Agilent Technologies Inc. (NYSE:A), General Mills, Inc. (NYSE:GIS), Xcel Energy Inc (NASDAQ:XEL), and The Travelers Companies Inc (NYSE:TRV). This group of stocks' market caps resemble SRE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position E,4,42161,-1 FCAU,15,223893,-5 CSGP,51,2882489,-4 A,45,3507911,6 GIS,39,952845,3 XEL,28,289526,6 TRV,34,405824,-1 Average,30.9,1186378,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $1186 million. That figure was $778 million in SRE's case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 4 bullish hedge fund positions. Sempra Energy (NYSE:SRE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SRE is 65.1. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately SRE wasn't nearly as popular as these 30 stocks and hedge funds that were betting on SRE were disappointed as the stock returned 4.3% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.