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Denbury Resources Inc. (DNR): Are Hedge Funds Right About This Stock?

Debasis Saha

With the first-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 second quarter. One of these stocks was Denbury Resources Inc. (NYSE:DNR).

Denbury Resources Inc. (NYSE:DNR) was in 11 hedge funds' portfolios at the end of September. DNR has experienced an increase in support from the world's most elite money managers recently. There were 10 hedge funds in our database with DNR positions at the end of the previous quarter. Our calculations also showed that DNR 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 plenty of indicators shareholders use to assess their holdings. A pair of the most underrated indicators are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best money managers can outperform the S&P 500 by a healthy amount (see the details here).

[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/caption]

Izzy Englander of MILLENNIUM 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. Let's review the latest hedge fund action surrounding Denbury Resources Inc. (NYSE:DNR).

What does smart money think about Denbury Resources Inc. (NYSE:DNR)?

At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in DNR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DNR A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in Denbury Resources Inc. (NYSE:DNR). Millennium Management has a $7.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Soros Fund Management, led by George Soros, holding a $4.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Ken Griffin's Citadel Investment Group, Donald Sussman's Paloma Partners and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Yaupon Capital allocated the biggest weight to Denbury Resources Inc. (NYSE:DNR), around 0.17% of its 13F portfolio. Soros Fund Management is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to DNR.

As aggregate interest increased, some big names have jumped into Denbury Resources Inc. (NYSE:DNR) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Denbury Resources Inc. (NYSE:DNR). Arrowstreet Capital had $0.6 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new DNR position is Steve Pattyn's Yaupon Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Denbury Resources Inc. (NYSE:DNR) but similarly valued. We will take a look at Quad/Graphics, Inc. (NYSE:QUAD), New Senior Investment Group Inc (NYSE:SNR), Cohu, Inc. (NASDAQ:COHU), and Whitestone REIT (NYSE:WSR). This group of stocks' market valuations are closest to DNR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QUAD,9,15228,-7 SNR,10,77836,0 COHU,11,46391,1 WSR,1,18218,-3 Average,7.75,39418,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $19 million in DNR's case. Cohu, Inc. (NASDAQ:COHU) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 1 bullish hedge fund positions. Denbury Resources Inc. (NYSE:DNR) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DNR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DNR were disappointed as the stock returned -16.8% 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 many of these stocks already outperformed the market so far this year.

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

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