Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is Cimarex Energy Co (NYSE:XEC) a buy right now? Investors who are in the know are taking a pessimistic view. The number of long hedge fund bets fell by 3 lately. Our calculations also showed that XEC isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the latest hedge fund action surrounding Cimarex Energy Co (NYSE:XEC).
How have hedgies been trading Cimarex Energy Co (NYSE:XEC)?
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in XEC 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, Diamond Hill Capital was the largest shareholder of Cimarex Energy Co (NYSE:XEC), with a stake worth $411.6 million reported as of the end of March. Trailing Diamond Hill Capital was International Value Advisers, which amassed a stake valued at $176.1 million. Adage Capital Management, Encompass Capital Advisors, and Deep Basin Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Since Cimarex Energy Co (NYSE:XEC) has witnessed bearish sentiment from the smart money, it's safe to say that there exists a select few fund managers who sold off their full holdings heading into Q3. It's worth mentioning that Ken Griffin's Citadel Investment Group said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, comprising close to $13.4 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund cut about $8.3 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to Cimarex Energy Co (NYSE:XEC). We will take a look at Ares Management Corporation (NYSE:ARES), Arrow Electronics, Inc. (NYSE:ARW), Kemper Corporation (NYSE:KMPR), and Elastic N.V. (NYSE:ESTC). This group of stocks' market values are closest to XEC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARES,10,181196,-4 ARW,17,385523,-5 KMPR,19,172679,11 ESTC,27,402508,9 Average,18.25,285477,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $1108 million in XEC's case. Elastic N.V. (NYSE:ESTC) is the most popular stock in this table. On the other hand Ares Management Corporation (NYSE:ARES) is the least popular one with only 10 bullish hedge fund positions. Cimarex Energy Co (NYSE:XEC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately XEC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on XEC were disappointed as the stock returned -18.8% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.