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Should I Buy Bonanza Creek Energy Inc (BCEI)?

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·5 min read
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  • BCEI

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Bonanza Creek Energy Inc (NYSE:BCEI).

Bonanza Creek Energy Inc (NYSE:BCEI) has seen an increase in hedge fund interest in recent months. Bonanza Creek Energy Inc (NYSE:BCEI) was in 21 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 22. Our calculations also showed that BCEI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Richard Driehaus of Driehaus Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to take a peek at the key hedge fund action encompassing Bonanza Creek Energy Inc (NYSE:BCEI).

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

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in BCEI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BCEI A Good Stock To Buy?
Is BCEI A Good Stock To Buy?

The largest stake in Bonanza Creek Energy Inc (NYSE:BCEI) was held by Driehaus Capital, which reported holding $30.7 million worth of stock at the end of June. It was followed by Arrowstreet Capital with a $19.8 million position. Other investors bullish on the company included Diamond Hill Capital, SIR Capital Management, and Divisar Capital. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Bonanza Creek Energy Inc (NYSE:BCEI), around 3.23% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 1.86 percent of its 13F equity portfolio to BCEI.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Bonanza Creek Energy Inc (NYSE:BCEI) headfirst. Intrinsic Edge Capital, managed by Mark Coe, established the most valuable position in Bonanza Creek Energy Inc (NYSE:BCEI). Intrinsic Edge Capital had $7 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $2.3 million investment in the stock during the quarter. The other funds with brand new BCEI positions are Donald Sussman's Paloma Partners, Joel Greenblatt's Gotham Asset Management, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Bonanza Creek Energy Inc (NYSE:BCEI) but similarly valued. These stocks are Noble Corporation (NYSE:NE), Tennant Company (NYSE:TNC), MGP Ingredients Inc (NASDAQ:MGPI), Omega Flex, Inc. (NASDAQ:OFLX), ArcBest Corp (NASDAQ:ARCB), The Liberty Braves Group (NASDAQ:BATRA), and New Frontier Health Corporation (NYSE:NFH). This group of stocks' market caps resemble BCEI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NE,14,289947,14 TNC,17,79052,3 MGPI,14,45412,7 OFLX,3,4650,-2 ARCB,23,104896,10 BATRA,14,67131,2 NFH,17,368304,4 Average,14.6,137056,5.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $110 million in BCEI's case. ArcBest Corp (NASDAQ:ARCB) is the most popular stock in this table. On the other hand Omega Flex, Inc. (NASDAQ:OFLX) is the least popular one with only 3 bullish hedge fund positions. Bonanza Creek Energy Inc (NYSE:BCEI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BCEI is 80.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on BCEI as the stock returned 18.4% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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