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Here’s What Hedge Funds Think About Concho Resources Inc. (CXO)

Abigail Fisher

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Concho Resources Inc. (NYSE:CXO).

Is Concho Resources Inc. (NYSE:CXO) a buy, sell, or hold? Hedge funds are turning less bullish. The number of long hedge fund bets were trimmed by 9 lately. Our calculations also showed that CXO isn't among the 30 most popular stocks among hedge funds. CXO was in 26 hedge funds' portfolios at the end of the first quarter of 2019. There were 35 hedge funds in our database with CXO 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' 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 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 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.

Phill Gross, Adage Capital Management

Let's review the key hedge fund action surrounding Concho Resources Inc. (NYSE:CXO).

How are hedge funds trading Concho Resources Inc. (NYSE:CXO)?

Heading into the second quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CXO over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CXO_june2019

More specifically, Citadel Investment Group was the largest shareholder of Concho Resources Inc. (NYSE:CXO), with a stake worth $269.3 million reported as of the end of March. Trailing Citadel Investment Group was Point72 Asset Management, which amassed a stake valued at $73.1 million. Alyeska Investment Group, Adage Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Because Concho Resources Inc. (NYSE:CXO) has witnessed bearish sentiment from the smart money, it's safe to say that there exists a select few funds that slashed their full holdings last quarter. Interestingly, Daniel Arbess's Perella Weinberg Partners cut the largest stake of the 700 funds watched by Insider Monkey, totaling about $28.1 million in stock, and Todd J. Kantor's Encompass Capital Advisors was right behind this move, as the fund sold off about $20.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Concho Resources Inc. (NYSE:CXO) but similarly valued. These stocks are TELUS Corporation (NYSE:TU), Parker-Hannifin Corporation (NYSE:PH), FirstEnergy Corp. (NYSE:FE), and Centene Corp (NYSE:CNC). This group of stocks' market valuations match CXO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TU,13,336110,2 PH,28,516590,-2 FE,41,3727862,2 CNC,58,2067914,2 Average,35,1662119,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1662 million. That figure was $531 million in CXO's case. Centene Corp (NYSE:CNC) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 13 bullish hedge fund positions. Concho Resources Inc. (NYSE:CXO) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CXO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CXO investors were disappointed as the stock returned -11.5% during the same time 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.

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