How Did Hedge Funds’ The Southern Company (SO) Bets Fare?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards The Southern Company (NYSE:SO) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is The Southern Company (NYSE:SO) going to take off soon? Investors who are in the know were turning less bullish. The number of long hedge fund positions went down by 7 in recent months. The Southern Company (NYSE:SO) was in 30 hedge funds’ portfolios at the end of the third 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 Q3 rankings). There were 37 hedge funds in our database with SO holdings at the end of June.

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. Keeping this in mind let’s take a peek at the key hedge fund action surrounding The Southern Company (NYSE:SO).

Stuart Zimmer of Zimmer Partners

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

Heading into the fourth quarter of 2021, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SO over the last 25 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the biggest position in The Southern Company (NYSE:SO). Zimmer Partners has a $203.4 million position in the stock, comprising 3.2% of its 13F portfolio. The second largest stake is Renaissance Technologies, with a $151.6 million position; 0.2% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism consist of Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Coann Capital allocated the biggest weight to The Southern Company (NYSE:SO), around 7.68% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, setting aside 3.2 percent of its 13F equity portfolio to SO.

Due to the fact that The Southern Company (NYSE:SO) has faced declining sentiment from hedge fund managers, we can see that there were a few hedgies that slashed their positions entirely last quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors sold off the largest position of all the hedgies tracked by Insider Monkey, totaling about $15.2 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund dumped about $3.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 7 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). We will take a look at ICICI Bank Limited (NYSE:IBN), Illinois Tool Works Inc. (NYSE:ITW), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Intercontinental Exchange Inc (NYSE:ICE), Bank of Montreal (NYSE:BMO), Aon plc (NYSE:AON), and Colgate-Palmolive Company (NYSE:CL). This group of stocks’ market values are similar to SO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $2274 million. That figure was $676 million in SO’s case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 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 43.1. 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. 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 beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on SO as the stock returned 13.3% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.

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