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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, 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 30,000 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 Apache Corporation (NASDAQ:APA).
Is APA a good stock to buy now? The smart money was becoming more confident. The number of long hedge fund bets advanced by 2 lately. Apache Corporation (NASDAQ:APA) was in 42 hedge funds' portfolios at the end of September. The all time high for this statistic is 45. Our calculations also showed that APA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Tudor Jones of Tudor Investment Corp
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 cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. Now we're going to check out the key hedge fund action regarding Apache Corporation (NASDAQ:APA).
Do Hedge Funds Think APA Is A Good Stock To Buy Now?
At Q3's end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2020. By comparison, 28 hedge funds held shares or bullish call options in APA a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Orbis Investment Management held the most valuable stake in Apache Corporation (NASDAQ:APA), which was worth $146.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $116.4 million worth of shares. Arrowstreet Capital, D E Shaw, and Point72 Asset Management 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 Kettle Hill Capital Management allocated the biggest weight to Apache Corporation (NASDAQ:APA), around 2.51% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 1.47 percent of its 13F equity portfolio to APA.
Now, key hedge funds have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the biggest position in Apache Corporation (NASDAQ:APA). Adage Capital Management had $2 million invested in the company at the end of the quarter. Till Bechtolsheimer's Arosa Capital Management also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new APA investors: Benjamin A. Smith's Laurion Capital Management, Paul Tudor Jones's Tudor Investment Corp, and Mark Coe's Intrinsic Edge Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Apache Corporation (NASDAQ:APA) but similarly valued. These stocks are bluebird bio Inc (NASDAQ:BLUE), TCF Financial Corporation (NASDAQ:TCF), Flowserve Corporation (NYSE:FLS), Canada Goose Holdings Inc. (NYSE:GOOS), Southwest Gas Holdings, Inc. (NYSE:SWX), Valvoline Inc. (NYSE:VVV), and National Oilwell Varco, Inc. (NYSE:NOV). All of these stocks' market caps are closest to APA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLUE,35,322436,-2 TCF,11,60244,-3 FLS,19,197860,-11 GOOS,21,190815,1 SWX,16,77908,3 VVV,35,559656,-5 NOV,33,530078,3 Average,24.3,277000,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $508 million in APA's case. bluebird bio Inc (NASDAQ:BLUE) is the most popular stock in this table. On the other hand TCF Financial Corporation (NASDAQ:TCF) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Apache Corporation (NASDAQ:APA) is more popular among hedge funds. Our overall hedge fund sentiment score for APA is 85. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on APA as the stock returned 56.3% since the end of September (through 12/8) 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.