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Is Chesapeake Energy Corporation (CHK) Going To Burn These Hedge Funds ?

Nina Todic

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Chesapeake Energy Corporation (NYSE:CHK) shareholders have witnessed a decrease in hedge fund sentiment recently. CHK was in 17 hedge funds' portfolios at the end of September. There were 18 hedge funds in our database with CHK holdings at the end of the previous quarter. Our calculations also showed that CHK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Today there are a lot of metrics shareholders can use to grade their stock investments. A duo of the most innovative metrics are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce the broader indices by a superb margin (see the details here).

[caption id="attachment_339352" align="aligncenter" width="500"] Joe Huber of Huber Capital Management[/caption]

Joe Huber - Huber Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the new hedge fund action encompassing Chesapeake Energy Corporation (NYSE:CHK).

What have hedge funds been doing with Chesapeake Energy Corporation (NYSE:CHK)?

At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHK over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in Chesapeake Energy Corporation (NYSE:CHK), which was worth $36.7 million at the end of the third quarter. On the second spot was Huber Capital Management which amassed $15.7 million worth of shares. AQR Capital Management, Fisher Asset Management, and Paloma Partners 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 Huber Capital Management allocated the biggest weight to Chesapeake Energy Corporation (NYSE:CHK), around 1.94% of its 13F portfolio. Angelo Gordon & Co is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to CHK.

Since Chesapeake Energy Corporation (NYSE:CHK) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few hedge funds that elected to cut their full holdings by the end of the third quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management cut the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $2.4 million in stock. David Costen Haley's fund, HBK Investments, also sold off its stock, about $1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Chesapeake Energy Corporation (NYSE:CHK) but similarly valued. We will take a look at Acadia Healthcare Company Inc (NASDAQ:ACHC), Texas Capital Bancshares Inc (NASDAQ:TCBI), Urban Outfitters, Inc. (NASDAQ:URBN), and Hilton Grand Vacations Inc. (NYSE:HGV). This group of stocks' market caps are closest to CHK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACHC,20,574852,3 TCBI,20,249477,1 URBN,33,292388,12 HGV,42,1078532,5 Average,28.75,548812,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $66 million in CHK's case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Acadia Healthcare Company Inc (NASDAQ:ACHC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Chesapeake Energy Corporation (NYSE:CHK) is even less popular than ACHC. Hedge funds dodged a bullet by taking a bearish stance towards CHK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHK investors were disappointed as the stock returned -57.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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