Hedge Funds Are Nibbling On Peabody Energy Corporation (BTU)

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 Peabody Energy Corporation (NYSE:BTU) to find out whether there were any major changes in hedge funds' views.

Is Peabody Energy Corporation (NYSE:BTU) a buy here? The smart money was betting on the stock. The number of bullish hedge fund bets rose by 1 lately. Peabody Energy Corporation (NYSE:BTU) was in 21 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 36. Our calculations also showed that BTU isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 20 hedge funds in our database with BTU positions at the end of the fourth quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Paul Singer ELLIOTT MANAGEMENT
Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. 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. With all of this in mind let's go over the new hedge fund action regarding Peabody Energy Corporation (NYSE:BTU).

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

At first quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BTU over the last 23 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is BTU A Good Stock To Buy?
Is BTU A Good Stock To Buy?

More specifically, Elliott Investment Management was the largest shareholder of Peabody Energy Corporation (NYSE:BTU), with a stake worth $88.5 million reported as of the end of March. Trailing Elliott Investment Management was Adage Capital Management, which amassed a stake valued at $8.3 million. Hosking Partners, Renaissance Technologies, and Alden Global Capital 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 Alden Global Capital allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 1.18% of its 13F portfolio. Elliott Investment Management is also relatively very bullish on the stock, setting aside 0.66 percent of its 13F equity portfolio to BTU.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. JS Capital, managed by Jonathan Soros, initiated the largest position in Peabody Energy Corporation (NYSE:BTU). JS Capital had $0.4 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Cliff Asness's AQR Capital Management and Peter Muller's PDT Partners.

Let's now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Peabody Energy Corporation (NYSE:BTU) but similarly valued. We will take a look at BELLUS Health Inc. (NASDAQ:BLU), Greenlight Capital Re, Ltd. (NASDAQ:GLRE), Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), Navios Maritime Containers L.P. (NASDAQ:NMCI), Xeris Pharmaceuticals, Inc. (NASDAQ:XERS), AudioEye, Inc. (NASDAQ:AEYE), and Theratechnologies Inc. (NASDAQ:THTX). All of these stocks' market caps match BTU's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLU,12,88516,-2 GLRE,8,5644,-2 EIGR,17,69455,0 NMCI,3,23247,-1 XERS,11,65125,4 AEYE,5,28137,-1 THTX,6,43493,1 Average,8.9,46231,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $122 million in BTU's case. Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) is the most popular stock in this table. On the other hand Navios Maritime Containers L.P. (NASDAQ:NMCI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our overall hedge fund sentiment score for BTU is 73.5. 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 returned 23.8% in 2021 through July 16th but still managed to beat the market by 7.7 percentage points. Hedge funds were also right about betting on BTU as the stock returned 184.6% since the end of March (through 7/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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