We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Jagged Peak Energy Inc. (NYSE:JAG).
Is Jagged Peak Energy Inc. (NYSE:JAG) worth your attention right now? Hedge funds are getting more bullish. The number of long hedge fund positions went up by 1 in recent months. Our calculations also showed that JAG 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.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]
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 peek at the latest hedge fund action surrounding Jagged Peak Energy Inc. (NYSE:JAG).
How are hedge funds trading Jagged Peak Energy Inc. (NYSE:JAG)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in JAG a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Deep Basin Capital was the largest shareholder of Jagged Peak Energy Inc. (NYSE:JAG), with a stake worth $61.8 million reported as of the end of September. Trailing Deep Basin Capital was Encompass Capital Advisors, which amassed a stake valued at $42.7 million. Citadel Investment Group, Adage Capital Management, and GLG 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 Deep Basin Capital allocated the biggest weight to Jagged Peak Energy Inc. (NYSE:JAG), around 4.88% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, designating 2.93 percent of its 13F equity portfolio to JAG.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Paloma Partners, managed by Donald Sussman, established the most outsized position in Jagged Peak Energy Inc. (NYSE:JAG). Paloma Partners had $4.2 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also made a $1.9 million investment in the stock during the quarter. The only other fund with a new position in the stock is Andrew Weiss's Weiss Asset Management.
Let's also examine hedge fund activity in other stocks similar to Jagged Peak Energy Inc. (NYSE:JAG). These stocks are Redfin Corporation (NASDAQ:RDFN), Scorpio Tankers Inc. (NYSE:STNG), Grupo Simec, S.A.B. de C.V. (NYSE:SIM), and BP Midstream Partners LP (NYSE:BPMP). All of these stocks' market caps resemble JAG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDFN,15,213466,5 STNG,24,121555,1 SIM,1,2365,0 BPMP,5,25153,0 Average,11.25,90635,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $163 million in JAG's case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Grupo Simec, S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Jagged Peak Energy Inc. (NYSE:JAG) 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 JAG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on JAG were disappointed as the stock returned -8.1% 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.