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With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Cenovus Energy Inc (NYSE:CVE).
Is CVE a good stock to buy now? Cenovus Energy Inc (NYSE:CVE) was in 18 hedge funds' portfolios at the end of September. The all time high for this statistic is 31. CVE investors should be aware of a decrease in hedge fund sentiment recently. There were 26 hedge funds in our database with CVE positions at the end of the second quarter. Our calculations also showed that CVE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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' 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 66 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.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now we're going to analyze the key hedge fund action regarding Cenovus Energy Inc (NYSE:CVE).
Do Hedge Funds Think CVE Is A Good Stock To Buy Now?
At third quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVE over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pzena Investment Management was the largest shareholder of Cenovus Energy Inc (NYSE:CVE), with a stake worth $71.7 million reported as of the end of September. Trailing Pzena Investment Management was Citadel Investment Group, which amassed a stake valued at $55.8 million. Encompass Capital Advisors, Luminus Management, and Point72 Asset Management 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 Luminus Management allocated the biggest weight to Cenovus Energy Inc (NYSE:CVE), around 5.68% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 2.9 percent of its 13F equity portfolio to CVE.
Because Cenovus Energy Inc (NYSE:CVE) has faced falling interest from hedge fund managers, logic holds that there lies a certain "tier" of hedge funds that slashed their full holdings by the end of the third quarter. Interestingly, Len Kipp and Xavier Majic's Maple Rock Capital said goodbye to the largest stake of the 750 funds followed by Insider Monkey, totaling an estimated $26.1 million in stock, and Brian J. Higgins's King Street Capital was right behind this move, as the fund dumped about $13.1 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 8 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 Cenovus Energy Inc (NYSE:CVE) but similarly valued. These stocks are Nevro Corp (NYSE:NVRO), Skechers USA Inc (NYSE:SKX), Euronet Worldwide, Inc. (NASDAQ:EEFT), Choice Hotels International, Inc. (NYSE:CHH), Enel Chile S.A. (NYSE:ENIC), Diamondback Energy Inc (NASDAQ:FANG), and KT Corporation (NYSE:KT). This group of stocks' market values resemble CVE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVRO,34,815256,-1 SKX,28,480907,-5 EEFT,39,395554,2 CHH,27,124786,5 ENIC,4,14899,-1 FANG,23,133783,-6 KT,10,147562,-2 Average,23.6,301821,-1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $242 million in CVE's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 4 bullish hedge fund positions. Cenovus Energy Inc (NYSE:CVE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CVE is 34.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on CVE as the stock returned 55.3% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.