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Hedge Funds Have Never Been This Bullish On CVR Energy, Inc. (CVI)

Nina Todic

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in CVR Energy, Inc. (NYSE:CVI).

Is CVR Energy, Inc. (NYSE:CVI) a first-rate investment now? Hedge funds are turning bullish. The number of bullish hedge fund bets increased by 7 recently. Our calculations also showed that CVI 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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_25910" align="aligncenter" width="467"] Carl Icahn of Icahn Capital[/caption]

Most Popular Stocks Among Hedge Funds

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the latest hedge fund action encompassing CVR Energy, Inc. (NYSE:CVI).

Hedge fund activity in CVR Energy, Inc. (NYSE:CVI)

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in CVI 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.

No of Hedge Funds with CVI Positions

Among these funds, Icahn Capital held the most valuable stake in CVR Energy, Inc. (NYSE:CVI), which was worth $3134.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $92.7 million worth of shares. Two Sigma Advisors, Gotham Asset 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 Icahn Capital allocated the biggest weight to CVR Energy, Inc. (NYSE:CVI), around 12.2% of its portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 0.34 percent of its 13F equity portfolio to CVI.

Consequently, key hedge funds have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, established the most valuable position in CVR Energy, Inc. (NYSE:CVI). Bridgewater Associates had $3.5 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $3.4 million position during the quarter. The other funds with new positions in the stock are David E. Shaw's D E Shaw, Sara Nainzadeh's Centenus Global Management, and Michael Gelband's ExodusPoint Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as CVR Energy, Inc. (NYSE:CVI) but similarly valued. These stocks are Envista Holdings Corporation (NYSE:NVST), The Boston Beer Company Inc (NYSE:SAM), Helmerich & Payne, Inc. (NYSE:HP), and Assured Guaranty Ltd. (NYSE:AGO). All of these stocks' market caps are closest to CVI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVST,21,255475,21 SAM,29,661168,6 HP,28,270247,-5 AGO,35,576379,-1 Average,28.25,440817,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $3273 million in CVI's case. Assured Guaranty Ltd. (NYSE:AGO) is the most popular stock in this table. On the other hand Envista Holdings Corporation (NYSE:NVST) is the least popular one with only 21 bullish hedge fund positions. CVR Energy, Inc. (NYSE:CVI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 CVI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CVI investors were disappointed as the stock returned 0.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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