Is Cabot Oil & Gas Corporation (NYSE:COG) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Cabot Oil & Gas Corporation (NYSE:COG) ready to rally soon? Investors who are in the know are in a bearish mood. The number of long hedge fund bets were cut by 1 in recent months. Our calculations also showed that COG isn't among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We're going to take a look at the recent hedge fund action regarding Cabot Oil & Gas Corporation (NYSE:COG).
What does the smart money think about Cabot Oil & Gas Corporation (NYSE:COG)?
At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in COG a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Stelliam Investment Management was the largest shareholder of Cabot Oil & Gas Corporation (NYSE:COG), with a stake worth $298.5 million reported as of the end of March. Trailing Stelliam Investment Management was Luminus Management, which amassed a stake valued at $155.7 million. Deep Basin Capital, Arrowstreet Capital, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Cabot Oil & Gas Corporation (NYSE:COG) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers who were dropping their positions entirely last quarter. At the top of the heap, Jonathan Barrett and Paul Segal's Luminus Management dropped the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling about $96.4 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $23.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Cabot Oil & Gas Corporation (NYSE:COG) but similarly valued. These stocks are Ally Financial Inc (NYSE:ALLY), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Duke Realty Corporation (NYSE:DRE), and Lamb Weston Holdings, Inc. (NYSE:LW). All of these stocks' market caps resemble COG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLY,35,2048431,-1 JBHT,27,334824,2 DRE,16,302599,-6 LW,41,1255203,9 Average,29.75,985264,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $985 million. That figure was $944 million in COG's case. Lamb Weston Holdings, Inc. (NYSE:LW) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Cabot Oil & Gas Corporation (NYSE:COG) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately COG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on COG were disappointed as the stock returned -3.2% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.