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Should You Avoid Viper Energy Partners LP (VNOM)?

Debasis Saha

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Viper Energy Partners LP (NASDAQ:VNOM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Viper Energy Partners LP (NASDAQ:VNOM) a bargain? Prominent investors were turning less bullish. The number of bullish hedge fund positions decreased by 5 lately. Our calculations also showed that VNOM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). VNOM was in 11 hedge funds' portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with VNOM holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are numerous formulas market participants can use to assess their holdings. A duo of the most innovative formulas are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the top investment managers can beat the S&P 500 by a very impressive margin (see the details here).

[caption id="attachment_338857" align="aligncenter" width="400"] Charles Davidson of Wexford Capital[/caption]

Charles Davidson - Wexford Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to go over the latest hedge fund action regarding Viper Energy Partners LP (NASDAQ:VNOM).

How have hedgies been trading Viper Energy Partners LP (NASDAQ:VNOM)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in VNOM a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is VNOM A Good Stock To Buy?

Among these funds, Cardinal Capital held the most valuable stake in Viper Energy Partners LP (NASDAQ:VNOM), which was worth $14.6 million at the end of the third quarter. On the second spot was Alyeska Investment Group which amassed $8.3 million worth of shares. First Pacific Advisors LLC, Waratah Capital Advisors, and Arosa Capital 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 Cardinal Capital allocated the biggest weight to Viper Energy Partners LP (NASDAQ:VNOM), around 0.72% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, earmarking 0.27 percent of its 13F equity portfolio to VNOM.

Seeing as Viper Energy Partners LP (NASDAQ:VNOM) has experienced bearish sentiment from hedge fund managers, we can see that there was a specific group of money managers that decided to sell off their positions entirely heading into Q4. Intriguingly, Vince Maddi and Shawn Brennan's SIR Capital Management dumped the largest stake of the "upper crust" of funds tracked by Insider Monkey, worth about $8.6 million in stock, and George Soros's Soros Fund Management was right behind this move, as the fund dumped about $4.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q4.

Let's check out hedge fund activity in other stocks similar to Viper Energy Partners LP (NASDAQ:VNOM). We will take a look at Pretium Resources Inc (NYSE:PVG), Addus Homecare Corporation (NASDAQ:ADUS), Alamo Group, Inc. (NYSE:ALG), and ShockWave Medical, Inc. (NASDAQ:SWAV). This group of stocks' market caps are similar to VNOM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PVG,25,66926,1 ADUS,15,65282,-2 ALG,8,132111,1 SWAV,10,70180,-5 Average,14.5,83625,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $30 million in VNOM's case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand Alamo Group, Inc. (NYSE:ALG) is the least popular one with only 8 bullish hedge fund positions. Viper Energy Partners LP (NASDAQ:VNOM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on VNOM as the stock returned 58.1% during the second quarter and outperformed the market by an even larger margin.

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

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