Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Roan Resources, Inc. (NYSE:ROAN) from the perspective of those elite funds.
Is Roan Resources, Inc. (NYSE:ROAN) a buy, sell, or hold? The best stock pickers are taking an optimistic view. The number of bullish hedge fund bets rose by 4 lately. Our calculations also showed that ROAN isn't among the 30 most popular stocks among hedge funds. ROAN was in 18 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with ROAN holdings at the end of the previous quarter.
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' 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the recent hedge fund action regarding Roan Resources, Inc. (NYSE:ROAN).
How have hedgies been trading Roan Resources, Inc. (NYSE:ROAN)?
At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in ROAN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Elliott Management held the most valuable stake in Roan Resources, Inc. (NYSE:ROAN), which was worth $96.5 million at the end of the first quarter. On the second spot was Fir Tree which amassed $89.9 million worth of shares. Moreover, York Capital Management, Marble Ridge Capital, and Silver Point Capital were also bullish on Roan Resources, Inc. (NYSE:ROAN), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers have jumped into Roan Resources, Inc. (NYSE:ROAN) headfirst. Millennium Management, managed by Israel Englander, created the largest position in Roan Resources, Inc. (NYSE:ROAN). Millennium Management had $3.4 million invested in the company at the end of the quarter. Bradley Louis Radoff's Fondren Management also initiated a $2.3 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Thomas Bailard's Bailard Inc, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Roan Resources, Inc. (NYSE:ROAN) but similarly valued. These stocks are Quantenna Communications, Inc. (NASDAQ:QTNA), The Chefs Warehouse, Inc (NASDAQ:CHEF), Standex Int'l Corp. (NYSE:SXI), and ShockWave Medical, Inc. (NASDAQ:SWAV). All of these stocks' market caps match ROAN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTNA,23,173264,1 CHEF,10,46595,0 SXI,11,17893,3 SWAV,14,98199,14 Average,14.5,83988,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $310 million in ROAN's case. Quantenna Communications, Inc. (NASDAQ:QTNA) is the most popular stock in this table. On the other hand The Chefs Warehouse, Inc (NASDAQ:CHEF) is the least popular one with only 10 bullish hedge fund positions. Roan Resources, Inc. (NYSE:ROAN) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ROAN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ROAN were disappointed as the stock returned -80.5% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.