Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Cheniere Energy, Inc. (NYSE:LNG).
Is Cheniere Energy, Inc. (NYSE:LNG) the right investment to pursue these days? Investors who are in the know are getting less optimistic. The number of bullish hedge fund bets went down by 4 lately. Our calculations also showed that LNG 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). LNG was in 39 hedge funds' portfolios at the end of March. There were 43 hedge funds in our database with LNG positions at the end of the previous quarter. 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 51 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_26423" align="aligncenter" width="389"] Seth Klarman of Baupost Group[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities 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. With all of this in mind let's take a look at the latest hedge fund action surrounding Cheniere Energy, Inc. (NYSE:LNG).
What does smart money think about Cheniere Energy, Inc. (NYSE:LNG)?
At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LNG over the last 18 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Icahn Capital LP held the most valuable stake in Cheniere Energy, Inc. (NYSE:LNG), which was worth $675.2 million at the end of the third quarter. On the second spot was Baupost Group which amassed $272.2 million worth of shares. Kensico Capital, Zimmer Partners, and MFN 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 MFN Partners allocated the biggest weight to Cheniere Energy, Inc. (NYSE:LNG), around 16.03% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, dishing out 9.04 percent of its 13F equity portfolio to LNG.
Judging by the fact that Cheniere Energy, Inc. (NYSE:LNG) has faced declining sentiment from the smart money, it's safe to say that there exists a select few fund managers who sold off their positions entirely in the third quarter. Intriguingly, Chris Yetter's Dumont Global sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $54.4 million in stock, and David Tepper's Appaloosa Management LP was right behind this move, as the fund cut about $25 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Cheniere Energy, Inc. (NYSE:LNG). These stocks are Molina Healthcare, Inc. (NYSE:MOH), Avery Dennison Corporation (NYSE:AVY), Huazhu Group Limited (NASDAQ:HTHT), and Molson Coors Beverage Company (NYSE:TAP). All of these stocks' market caps are closest to LNG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOH,32,1223084,-3 AVY,18,82899,-4 HTHT,17,255677,-1 TAP,34,258923,3 Average,25.25,455146,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $455 million. That figure was $1881 million in LNG's case. Molson Coors Beverage Company (NYSE:TAP) is the most popular stock in this table. On the other hand Huazhu Group Limited (NASDAQ:HTHT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Cheniere Energy, Inc. (NYSE:LNG) 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 LNG as the stock returned 32.4% 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.
Disclosure: None. This article was originally published at Insider Monkey.