Hedge Funds Have Never Been This Bullish On South Jersey Industries Inc (SJI)

Abigail Fisher

Sat, Mar 28, 2020, 6:52 PM 6 min read

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. Keeping this in mind, let's analyze whether South Jersey Industries Inc (NYSE:SJI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is South Jersey Industries Inc (NYSE:SJI) an attractive stock to buy now? Hedge funds are turning bullish. The number of bullish hedge fund positions went up by 4 lately. Our calculations also showed that SJI 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). SJI was in 18 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 14 hedge funds in our database with SJI holdings at the end of the previous quarter.

To the average investor there are numerous metrics stock traders have at their disposal to evaluate their holdings. Some of the most under-the-radar metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite investment managers can outpace the market by a healthy margin (see the details here).

[caption id="attachment_758429" align="aligncenter" width="399"]

Ric Dillon of Diamond Hill 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. Keeping this in mind we're going to review the fresh hedge fund action surrounding South Jersey Industries Inc (NYSE:SJI).

Hedge fund activity in South Jersey Industries Inc (NYSE:SJI)

At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SJI over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in South Jersey Industries Inc (NYSE:SJI) was held by Diamond Hill Capital, which reported holding $60.6 million worth of stock at the end of September. It was followed by Millennium Management with a $23.5 million position. Other investors bullish on the company included Paloma Partners, Citadel Investment Group, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to South Jersey Industries Inc (NYSE:SJI), around 1.87% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, setting aside 0.3 percent of its 13F equity portfolio to SJI.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Paloma Partners, managed by Donald Sussman, created the biggest position in South Jersey Industries Inc (NYSE:SJI). Paloma Partners had $14.4 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $7.6 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding's Winton Capital Management, D. E. Shaw's D E Shaw, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as South Jersey Industries Inc (NYSE:SJI) but similarly valued. We will take a look at Atlantic Union Bankshares Corporation (NASDAQ:AUB), Medpace Holdings, Inc. (NASDAQ:MEDP), Cathay General Bancorp (NASDAQ:CATY), and KB Home (NYSE:KBH). All of these stocks' market caps match SJI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AUB,8,20327,5 MEDP,17,202891,-5 CATY,14,22947,-4 KBH,29,535490,3 Average,17,195414,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $142 million in SJI's case. KB Home (NYSE:KBH) is the most popular stock in this table. On the other hand Atlantic Union Bankshares Corporation (NASDAQ:AUB) is the least popular one with only 8 bullish hedge fund positions. South Jersey Industries Inc (NYSE:SJI) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds 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 beat the market by 5.5 percentage points. Unfortunately SJI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SJI were disappointed as the stock returned -27.2% 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 many of these stocks already outperformed the market so far this year.