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Hedge Funds Are Nibbling On Battalion Oil Corporation (BATL)

Debasis Saha

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Battalion Oil Corporation (NYSE:BATL) based on those filings.

Is Battalion Oil Corporation (NYSE:BATL) going to take off soon? Prominent investors are nibbling on the stock. The number of bullish hedge fund bets was 5 at the end of the first quarter. Our calculations also showed that BATL 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

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' 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

[caption id="attachment_30614" align="aligncenter" width="400"] Howard Marks of Oaktree Capital Management[/caption]

Howard Marks OAKTREE CAPITAL MANAGEMENT

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 stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind let's review the key hedge fund action surrounding Battalion Oil Corporation (NYSE:BATL).

How are hedge funds trading Battalion Oil Corporation (NYSE:BATL)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

 

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Luminus Management, managed by Jonathan Barrett and Paul Segal, holds the most valuable position in Battalion Oil Corporation (NYSE:BATL). Luminus Management has a $28.8 million position in the stock, comprising 3% of its 13F portfolio. On Luminus Management's heels is Oaktree Capital Management, led by Howard Marks, holding a $14.1 million position; 0.4% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish encompass Didric Cederholm's Lion Point, Steve Ketchum's Sound Point Capital and Paul J. Isaac's Arbiter Partners Capital Management. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Battalion Oil Corporation (NYSE:BATL), around 2.97% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, setting aside 1.76 percent of its 13F equity portfolio to BATL.

As aggregate interest increased, specific money managers have been driving this bullishness. Luminus Management, managed by Jonathan Barrett and Paul Segal, assembled the biggest position in Battalion Oil Corporation (NYSE:BATL). Luminus Management had $28.8 million invested in the company at the end of the quarter. Howard Marks's Oaktree Capital Management also initiated a $14.1 million position during the quarter. The following funds were also among the new BATL investors: Didric Cederholm's Lion Point, Steve Ketchum's Sound Point Capital, and Paul J. Isaac's Arbiter Partners Capital Management.

Let's also examine hedge fund activity in other stocks similar to Battalion Oil Corporation (NYSE:BATL). These stocks are Battalion Oil Corporation (NYSE:BATL), PAVmed Inc. (NASDAQ:PAVM), Covia Holdings Corporation (NYSE:CVIA), and Ashford Hospitality Trust, Inc. (NYSE:AHT). This group of stocks' market caps are closest to BATL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BATL,5,50077,5 PAVM,3,1457,1 CVIA,4,3421,-4 AHT,7,6489,-2 Average,4.75,15361,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $50 million in BATL's case. Ashford Hospitality Trust, Inc. (NYSE:AHT) is the most popular stock in this table. On the other hand PAVmed Inc. (NASDAQ:PAVM) is the least popular one with only 3 bullish hedge fund positions. Battalion Oil Corporation (NYSE:BATL) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on BATL as the stock returned 23.9% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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