Natural Gas, Water Utilities: 1 Buy, 2 Sell Ideas From High Alpha Funds

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Includes: CPN, NFG, SRE
by: GuruFundPicks
Summary: Leading hedge fund and mutual fund managers that have a long-term track record of generating high alpha are equal-weight in the natural gas and water utilities group. Their best buy idea in the group is natural gas and geothermal power plant utility Calpine Corp. (NYSE:CPN). Their best sell ideas in the group are natural gas and electric utility Sempra Energy (NYSE:SRE) and natural gas utility National Fuel Gas Co. (NYSE:NFG).

What are the top new buy and sell ideas of high alpha generating funds in the natural gas and water utilities group? In this article, through research of the latest available institutional 13-F and 13-D/G (5% ownership) filings (as recent as ten days old), we identify the stocks in this group that were most bought and sold by a select group of high alpha generating funds numbering less than 100.

This select list represents less than one-half of one percent of the total number of U.S. equity investment funds, but together these high alpha or guru funds control almost ten percent of total U.S. equity discretionary fund assets. The credentials of each high alpha fund that justify its inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in this article.

The savvy investor may consider leveraging this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the high alpha fund best picks.

The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation.

This series is a follow-up to our previous series that identified top guru holdings by industry group. It updates that information for the most recent quarter, and identifies the stocks in the group most bought and sold by guru funds during the quarter, their top holdings in the group, and the number of guru funds that hold the stock. Based on this analysis, we determined that guru funds are invested at equal-weight in the natural gas and water utilities group. The following are their top buys, sells and holdings:
  • Sempra Energy (SRE) is a holding company engaged in natural gas and electric utility services to 3.5 million electric and 3.2 million gas consumers. Guru funds aggressively sold $47 million of their prior $48 million position in the group, with all $47 million being sold by SAC Capital Advisors LP. At a market-cap of over $12 billion, only one guru fund owns a small $1 million position in this stock, so gurus as a group are bearish on this stock. SRE trades at a forward price-to-earnings (P/E) ratio of 12, at the top of its historic P/E range. Analyst targets are in the mid-$50s to mid-$60s, only slightly above its current $52 price; and of the ten analysts covering the stock, four rate it a buy/strong buy and six rate it at a hold.
  • National Fuel Gas Co. (NFG) is a holding company providing gas utility services to 728,700 customers in western NY and northwestern PA. Guru funds sold $47 million of their prior $342 million position in the stock, including $22 million sold by Eton Park Capital Management LP, $20 million sold by Kingdon Capital Management LLC, and $4 million by GAMCO Investors, and no guru bought a new or added to their position in NFG during the quarter. NFG trades at a forward P/E of 23-24, at the top of its historic P/E range. Analyst targets are in the $70-$90 range with the mean and median targets in the mid-$70s, only slightly above the current $72; and of the eleven analysts covering the stock, five rate it a buy/strong buy, five a hold, and one rates it at a sell.
  • Constellation Energy Group (NYSE:CEG) is a holding company engaged in customer supply business and regulated electric and gas public utilities in central Maryland. CEG is under an agreement to merge with Exelon (NYSE:EXC).
  • California Water Services Group (NYSE:CWT) is a holding company engaged in the production, treatment and distribution of water in CA, WA, NM and HI. The net sell of $11 million was by Fisher Asset Management LLC.
  • Calpine Corp. (CPN) develops and operates natural-gas fired combustion turbine and geothermal power plants in the U.S. and Canada. Guru funds cumulatively own $781 million or 10.6% of the outstanding shares and added $2 million to their holdings during the quarter. The funds with the largest CPN holdings include RS Investment Management owning $338 million, Oakmark Funds owning $303 million, and First Eagle Investment Management LLC owning $89 million. Gurus taken as a group are bullish on the stock by virtue of this being their largest position in the group, the guru funds owning a large percentage of the outstanding shares, and guru funds adding to this large position during the quarter. CPN is a very complex story, and a Seeking Alpha article by contributor Alan Brochstein does a good job of explaining in detail the bullish position on the stock.
  • PNM Resources Inc. (NYSE:PNM) is a holding company engaged in the generation, transmission, distribution and sale of electricity and natural gas. Guru funds cumulatively own $143 million or 10.8% of the outstanding shares, with Donald Smith & Co. owning $80 million, GAMCO Investors owning $54 million, and Royce & Associates LLC owning $9 million.
  • Southwest Gas Corp. (NYSE:SWX) is engaged in the transportation and distribution of natural gas to 1.84 million customers in AZ, NV and CA. Guru funds cumulatively own $68 million or 4% of the outstanding shares, including GAMCO Investors with $65 million, Fisher Asset Management LLC with $2 million and Gotham Asset Management LLC with $1 million.
  • Black Hills Corp. (NYSE:BKH) provides utility services to 201,000 electric and 561,500 gas customers in SD, WY, NE, IA, KS, CO and MT. Guru funds cumulatively own $42 million or 3.6% of the outstanding shares, including $24 million by GAMCO Investors and $18 million by Private Capital Management.
  • CH Energy Group Inc. (NYSE:CHG) is engaged in regulated electric and natural gas utility services in central Hudson, New York. Guru funds own $38 million or 4.7% of the outstanding shares, all owned by GAMCO Investors.
  • N Star (NYSE:NST) is engaged in the transmission and distribution of electricity and natural gas to about 1.4 million customers in MA. GAMCO Investors owns $36 million of stock or 0.8% of the outstanding shares in this company.
  • DTE Energy Co. (NYSE:DTE) provides electric and natural gas utility services to 2.1 million electric and 1.2 million gas customers in MI. Four guru funds own $11 million or 0.1% of this company, including $5 million owned by Al Frank Asset Management, $3 million by Hussman Econometrics Advisors, $2 million by Fisher Asset Management LLC, and $0.3 million by SAC Capital Advisors LP.
  • Integrys Energy Group (NYSE:TEG) provides electric and natural gas utility services in areas of IL, WI and MN. Four guru funds own $6 million or 0.1% of this company, including $3 million owned by Keeley Asset Management Corp, $2 million by Bruce & Co., and less than $1 million positions owned by SAC Capital Advisors LP and Gotham Asset Management LLC.
  • Piedmont Natural Gas Co. (NYSE:PNY) is engaged in natural gas distribution to over 1 million residential, commercial and industrial customers in NC, SC and TN. Four guru funds own $15 million or 0.7% of the company, including $14 million by Royce & Associates LLC and the remaining $1 million accounted for together by Gotham Asset Management LLC, GAMCO Investors and Fisher Asset Management LLC.
  • Allete Inc. (NYSE:ALE) provides regulated utility electric, gas and water services to 183,000 customers in northeastern MN and northwestern WI. Three guru funds cumulatively own $23 million or 1.7% of the company, including $14 million owned by Keeley Asset Management Corp, $8 million by Royce & Associates LLC, and $1 million by GAMCO Investors.
  • Aqua America Inc. (NYSE:WTR) is a holding company providing water or waste-water utilities to about 3 million customers. Three guru funds own $19 million or 0.7% of the company, including $18 million by Royce & Associates LLC, and the remaining $1 million by Keeley Asset Management Corp and SAC Capital Advisors LP.
  • Unisource Energy Corp. (NYSE:UNS) is a holding company providing electric and natural gas utility services to about 494,000 electric and 146,500 gas customers. Three guru funds own $10 million of the company, including $7 million by GAMCO Investors, $3 million by Bruce & Co., and $0.5 million by Gotham Asset Management LLC.
  • Alliant Energy Corp. (NYSE:LNT) is a holding company engaged in the generation and transmission of electricity and natural gas services. Three guru funds cumulatively own $2 million or 0.04% of the company, including GAMCO Investors with $1 million, and the remaining $1 million owned by SAC Capital Advisors LP and Fisher Asset Management LLC.
Table
Company
Ticker
Market Value of Guru Holdings
Guru New Buys
Guru New Sells
Number of Gurus in Stock
Top Buys and Sells
Sempra Energy
SRE
$1 million
$0 million
($47) million
1
National Fuel Gas Co.
NFG
$295 million
$0 million
($47) million
6
Constellation Energy Group
CEG
$174 million
$7 million
($13) million
3
California Water Services
CWT
$0 million
$0 million
($11) million
0
Top Guru Holdings
Calpine Corp.
CPN
$781 million
$11 million
($9) million
7
PNM Resources Inc.
PNM
$143 million
$0 million
($3) million
3
Southwest Gas Corp.
SWX
$68 million
$1 million
$0 million
3
Black Hills Corp.
BKH
$42 million
$0 million
($1) million
2
CH Energy Group Inc.
CHG
$38 million
$0 million
($0) million
1
N Star
NST
$36 million
$0 million
($1) million
1
Other Stocks Held by Three or More Gurus
DTE Energy Co.
DTE
$11 million
$1 million
($1) million
4
Integrys Energy Group
TEG
$6 million
$0 million
($2) million
4
Piedmont Natural Gas Co.
PNY
$15 million
$0 million
($0) million
4
Allete Inc.
ALE
$23 million
$0 million
($0) million
3
Aqua America Inc.
WTR
$19 million
$0 million
$0 million
3
Unisource Energy Corp.
UNS
$10 million
$1 million
($0) million
3
Alliant Energy Corp.
LNT
$2 million
$0 million
($0) million
3

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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