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Is BP A Good Stock To Buy According To Hedge Funds?

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Abigail Fisher
·6 min read
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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of BP plc (NYSE:BP) based on that data.

Is BP a good stock to buy? BP plc (NYSE:BP) has experienced an increase in support from the world's most elite money managers of late. BP plc (NYSE:BP) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. There were 27 hedge funds in our database with BP positions at the end of the second quarter. Our calculations also showed that BP 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.

RENAISSANCE TECHNOLOGIES
RENAISSANCE TECHNOLOGIES

Jim Simons founder of Renaissance Technologies

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 under the radar cannabis 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. With all of this in mind we're going to view the new hedge fund action surrounding BP plc (NYSE:BP).

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

Heading into the fourth quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BP over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in BP plc (NYSE:BP) was held by Arrowstreet Capital, which reported holding $160.5 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $135.3 million position. Other investors bullish on the company included Renaissance Technologies, Orbis Investment Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to BP plc (NYSE:BP), around 6.54% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, dishing out 2.63 percent of its 13F equity portfolio to BP.

Consequently, key hedge funds have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, created the most outsized position in BP plc (NYSE:BP). Alyeska Investment Group had $29.2 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $8.3 million position during the quarter. The following funds were also among the new BP investors: Peter S. Stamos's Stamos Capital, Greg Eisner's Engineers Gate Manager, and Michael Gelband's ExodusPoint Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as BP plc (NYSE:BP) but similarly valued. We will take a look at Infosys Limited (NYSE:INFY), Marsh & McLennan Companies, Inc. (NYSE:MMC), The Southern Company (NYSE:SO), Ecolab Inc. (NYSE:ECL), Intercontinental Exchange Inc (NYSE:ICE), Takeda Pharmaceutical Company Limited (NYSE:TAK), and The Progressive Corporation (NYSE:PGR). This group of stocks' market values match BP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFY,22,1427968,-1 MMC,35,841460,-3 SO,25,305510,-13 ECL,52,2270732,6 ICE,64,2904596,4 TAK,19,733854,1 PGR,47,1692254,-3 Average,37.7,1453768,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.7 hedge funds with bullish positions and the average amount invested in these stocks was $1454 million. That figure was $612 million in BP's case. Intercontinental Exchange Inc (NYSE:ICE) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 19 bullish hedge fund positions. BP plc (NYSE:BP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BP is 42.7. 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 gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on BP as the stock returned 27% since the end of the third quarter (through 12/18) 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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