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Cabot Oil & Gas Corporation (COG): Are Hedge Funds Right About This Stock?

·6 min read

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Cabot Oil & Gas Corporation (NYSE:COG).

Cabot Oil & Gas Corporation (NYSE:COG) investors should be aware of an increase in hedge fund sentiment of late. Cabot Oil & Gas Corporation (NYSE:COG) was in 20 hedge funds' portfolios at the end of March. The all time high for this statistic is 48. There were 19 hedge funds in our database with COG positions at the end of the fourth quarter. Our calculations also showed that COG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Minhua Zhang of Weld Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. With all of this in mind let's review the latest hedge fund action surrounding Cabot Oil & Gas Corporation (NYSE:COG).

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

Heading into the second quarter of 2021, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the fourth quarter of 2020. On the other hand, there were a total of 37 hedge funds with a bullish position 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.

The largest stake in Cabot Oil & Gas Corporation (NYSE:COG) was held by AQR Capital Management, which reported holding $32.9 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $32.4 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Cabot Oil & Gas Corporation (NYSE:COG), around 0.3% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to COG.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Graham Capital Management, managed by Kenneth Tropin, established the most outsized position in Cabot Oil & Gas Corporation (NYSE:COG). Graham Capital Management had $2.1 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $1.2 million investment in the stock during the quarter. The other funds with brand new COG positions are Greg Eisner's Engineers Gate Manager, Kenneth A. Moffet's Hourglass Capital, and Minhua Zhang's Weld Capital Management.

Let's also examine 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 JOYY Inc. (NASDAQ:YY), Manhattan Associates, Inc. (NASDAQ:MANH), Thor Industries, Inc. (NYSE:THO), United Therapeutics Corporation (NASDAQ:UTHR), ICL Group Ltd. (NYSE:ICL), Brunswick Corporation (NYSE:BC), and TELUS International (Cda) Inc. (NYSE:TIXT). This group of stocks' market valuations match COG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YY,20,316827,0 MANH,28,303302,5 THO,21,183769,-3 UTHR,42,2116890,6 ICL,4,43595,-1 BC,42,1037373,6 TIXT,10,36105,10 Average,23.9,576837,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $135 million in COG's case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 4 bullish hedge fund positions. Cabot Oil & Gas Corporation (NYSE:COG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COG is 39.6. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately COG wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); COG investors were disappointed as the stock returned -13.4% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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