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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Marathon Oil Corporation (NYSE:MRO).
Is MRO stock a buy? Prominent investors were getting more optimistic. The number of bullish hedge fund positions increased by 10 lately. Marathon Oil Corporation (NYSE:MRO) was in 26 hedge funds' portfolios at the end of December. The all time high for this statistic is 39. Our calculations also showed that MRO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 124 percentage points since March 2017 (see the details here).
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to review the recent hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).
Do Hedge Funds Think MRO Is A Good Stock To Buy Now?
At Q4's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 63% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MRO over the last 22 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Marathon Oil Corporation (NYSE:MRO), which was worth $84.6 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $49 million worth of shares. Millennium Management, D E Shaw, and Encompass Capital Advisors 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 SIR Capital Management allocated the biggest weight to Marathon Oil Corporation (NYSE:MRO), around 3.43% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 2.02 percent of its 13F equity portfolio to MRO.
Consequently, key money managers were leading the bulls' herd. Encompass Capital Advisors, managed by Todd J. Kantor, established the largest position in Marathon Oil Corporation (NYSE:MRO). Encompass Capital Advisors had $28.5 million invested in the company at the end of the quarter. Vince Maddi and Shawn Brennan's SIR Capital Management also initiated a $17.5 million position during the quarter. The following funds were also among the new MRO investors: Dmitry Balyasny's Balyasny Asset Management, Michael Gelband's ExodusPoint Capital, and Joel Greenblatt's Gotham Asset Management.
Let's also examine hedge fund activity in other stocks similar to Marathon Oil Corporation (NYSE:MRO). We will take a look at Primerica, Inc. (NYSE:PRI), Iridium Communications Inc. (NASDAQ:IRDM), Everbridge, Inc. (NASDAQ:EVBG), Stifel Financial Corp. (NYSE:SF), Varonis Systems Inc (NASDAQ:VRNS), Manpowergroup Inc (NYSE:MAN), and Leslie's, Inc. (NASDAQ:LESL). All of these stocks' market caps are closest to MRO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRI,31,468219,-4 IRDM,18,431524,3 EVBG,36,1247361,6 SF,18,151609,0 VRNS,30,532551,1 MAN,31,350935,-3 LESL,22,300668,22 Average,26.6,497552,3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $498 million. That figure was $317 million in MRO's case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Iridium Communications Inc. (NASDAQ:IRDM) is the least popular one with only 18 bullish hedge fund positions. Marathon Oil Corporation (NYSE:MRO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MRO is 52.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on MRO as the stock returned 59.9% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.