Is Devon Energy Corp (NYSE:DVN) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Devon Energy Corp (NYSE:DVN) worth your attention right now? Hedge funds are taking a pessimistic view. The number of bullish hedge fund bets went down by 2 lately. Our calculations also showed that dvn isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's go over the key hedge fund action encompassing Devon Energy Corp (NYSE:DVN).
How are hedge funds trading Devon Energy Corp (NYSE:DVN)?
At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in DVN over the last 15 quarters. So, let's find 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 Devon Energy Corp (NYSE:DVN), which was worth $553.1 million at the end of the first quarter. On the second spot was Diamond Hill Capital which amassed $269.1 million worth of shares. Moreover, Elliott Management, Millennium Management, and AQR Capital Management were also bullish on Devon Energy Corp (NYSE:DVN), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Devon Energy Corp (NYSE:DVN) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of funds that slashed their full holdings in the third quarter. Intriguingly, Steve Cohen's Point72 Asset Management said goodbye to the largest position of the 700 funds watched by Insider Monkey, worth about $65.9 million in stock. Sara Nainzadeh's fund, Centenus Global Management, also said goodbye to its stock, about $10.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Devon Energy Corp (NYSE:DVN) but similarly valued. We will take a look at Copart, Inc. (NASDAQ:CPRT), Markel Corporation (NYSE:MKL), CNH Industrial NV (NYSE:CNHI), and Weibo Corp (NASDAQ:WB). This group of stocks' market caps resemble DVN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPRT,24,252865,-4 MKL,23,1039316,-1 CNHI,23,406434,7 WB,13,448621,-4 Average,20.75,536809,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $537 million. That figure was $1406 million in DVN's case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Devon Energy Corp (NYSE:DVN) is more popular among hedge funds. 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 DVN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DVN were disappointed as the stock returned -18.3% 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.