How Did Cheniere Energy, Inc. (LNG) Compare Against Top Hedge Fund Stocks in 2019?
Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Cheniere Energy, Inc. (NYSEAMERICAN:LNG)?
Cheniere Energy, Inc. (NYSEAMERICAN:LNG) was in 40 hedge funds' portfolios at the end of the third quarter of 2019. LNG investors should pay attention to a decrease in hedge fund sentiment recently. There were 43 hedge funds in our database with LNG holdings at the end of the previous quarter. Our calculations also showed that LNG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_25910" align="aligncenter" width="598"]
Carl Icahn of Icahn Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a peek at the new hedge fund action surrounding Cheniere Energy, Inc. (NYSEAMERICAN:LNG).
What have hedge funds been doing with Cheniere Energy, Inc. (NYSEAMERICAN:LNG)?
At Q3's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in LNG a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cheniere Energy, Inc. (NYSEAMERICAN:LNG) was held by Icahn Capital, which reported holding $1235 million worth of stock at the end of September. It was followed by Kensico Capital with a $682.6 million position. Other investors bullish on the company included Baupost Group, Steadfast Capital Management, and Anchorage Advisors. In terms of the portfolio weights assigned to each position Farmstead Capital Management allocated the biggest weight to Cheniere Energy, Inc. (NYSEAMERICAN:LNG), around 25.37% of its 13F portfolio. Anchorage Advisors is also relatively very bullish on the stock, earmarking 14.1 percent of its 13F equity portfolio to LNG.
Judging by the fact that Cheniere Energy, Inc. (NYSEAMERICAN:LNG) has experienced a decline in interest from the smart money, logic holds that there exists a select few funds who were dropping their full holdings heading into Q4. It's worth mentioning that Matthew Knauer and Mina Faltas's Nokota Management dropped the largest stake of the "upper crust" of funds tracked by Insider Monkey, valued at about $68.5 million in stock, and Jorge Paulo Lemann's 3G Capital was right behind this move, as the fund dropped about $47 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cheniere Energy, Inc. (NYSEAMERICAN:LNG) but similarly valued. We will take a look at Shinhan Financial Group Co., Ltd. (NYSE:SHG), Avangrid, Inc. (NYSE:AGR), Garmin Ltd. (NASDAQ:GRMN), and Incyte Corporation (NASDAQ:INCY). This group of stocks' market values are similar to LNG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHG,4,8676,-1 AGR,14,361586,2 GRMN,26,504128,-6 INCY,32,3214518,-4 Average,19,1022227,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $1022 million. That figure was $3860 million in LNG's case. Incyte Corporation (NASDAQ:INCY) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Cheniere Energy, Inc. (NYSEAMERICAN:LNG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately LNG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LNG were disappointed as the stock returned 5.8% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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