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Hedge Funds Are Nibbling On Apache Corporation (APA)

Debasis Saha

In this article you are going to find out whether hedge funds think Apache Corporation (NYSE:APA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Apache Corporation (NYSE:APA) a bargain? The smart money is taking a bullish view. The number of long hedge fund positions increased by 1 lately. Our calculations also showed that APA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). APA was in 35 hedge funds' portfolios at the end of March. There were 34 hedge funds in our database with APA positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most market participants, hedge funds are viewed as worthless, old financial tools of years past. While there are over 8000 funds with their doors open today, Our researchers look at the aristocrats of this club, approximately 850 funds. It is estimated that this group of investors shepherd the lion's share of the hedge fund industry's total asset base, and by tracking their finest picks, Insider Monkey has brought to light numerous investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_256989" align="aligncenter" width="400"] Dmitry Balyasny of Balyasny Asset Management[/caption]

Dmitry Balyasny of Balyasny Asset Managemnet

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a gander at the key hedge fund action surrounding Apache Corporation (NYSE:APA).

How are hedge funds trading Apache Corporation (NYSE:APA)?

At the end of the first quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in APA over the last 18 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is APA A Good Stock To Buy?

The largest stake in Apache Corporation (NYSE:APA) was held by Orbis Investment Management, which reported holding $66.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $13.3 million position. Other investors bullish on the company included Balyasny Asset Management, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Orbis Investment Management allocated the biggest weight to Apache Corporation (NYSE:APA), around 0.63% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, designating 0.53 percent of its 13F equity portfolio to APA.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the most outsized position in Apache Corporation (NYSE:APA). Balyasny Asset Management had $9.7 million invested in the company at the end of the quarter. Mike Masters's Masters Capital Management also made a $4.6 million investment in the stock during the quarter. The following funds were also among the new APA investors: Greg Eisner's Engineers Gate Manager, Steve Cohen's Point72 Asset Management, and Peter Muller's PDT Partners.

Let's check out hedge fund activity in other stocks similar to Apache Corporation (NYSE:APA). These stocks are Bandwidth Inc. (NASDAQ:BAND), Cleveland-Cliffs Inc (NYSE:CLF), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), and Phoenix Tree Holdings Limited (NYSE:DNK). This group of stocks' market caps are closest to APA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAND,33,195011,15 CLF,23,77492,-8 SFBS,10,10012,1 DNK,3,21532,3 Average,17.25,76012,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $142 million in APA's case. Bandwidth Inc. (NASDAQ:BAND) is the most popular stock in this table. On the other hand Phoenix Tree Holdings Limited (NYSE:DNK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Apache Corporation (NYSE:APA) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on APA as the stock returned 158.9% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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