At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Occidental Petroleum Corporation (NYSE:OXY) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Occidental Petroleum Corporation (NYSE:OXY) was in 34 hedge funds' portfolios at the end of June. The all time high for this statistics is 62. OXY investors should pay attention to a decrease in support from the world's most elite money managers recently. There were 35 hedge funds in our database with OXY positions at the end of the first quarter. Our calculations also showed that OXY isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
Carl Icahn of Icahn Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's take a glance at the latest hedge fund action encompassing Occidental Petroleum Corporation (NYSE:OXY).
What does smart money think about Occidental Petroleum Corporation (NYSE:OXY)?
At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 42 hedge funds with a bullish position in OXY a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Icahn Capital LP was the largest shareholder of Occidental Petroleum Corporation (NYSE:OXY), with a stake worth $1621.9 million reported as of the end of September. Trailing Icahn Capital LP was Citadel Investment Group, which amassed a stake valued at $51.8 million. Maple Rock Capital, D E Shaw, and GoldenTree Asset Management 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 Maple Rock Capital allocated the biggest weight to Occidental Petroleum Corporation (NYSE:OXY), around 9.82% of its 13F portfolio. Icahn Capital LP is also relatively very bullish on the stock, setting aside 8.22 percent of its 13F equity portfolio to OXY.
Seeing as Occidental Petroleum Corporation (NYSE:OXY) has witnessed declining sentiment from the smart money, logic holds that there lies a certain "tier" of money managers that elected to cut their full holdings in the second quarter. Intriguingly, Warren Buffett's Berkshire Hathaway sold off the biggest position of the "upper crust" of funds watched by Insider Monkey, comprising close to $219.2 million in stock. Renaissance Technologies, also dropped its stock, about $33.9 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds in the second quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Occidental Petroleum Corporation (NYSE:OXY) but similarly valued. We will take a look at Weyerhaeuser Co. (NYSE:WY), CMS Energy Corporation (NYSE:CMS), West Pharmaceutical Services Inc. (NYSE:WST), Smith & Nephew plc (NYSE:SNN), China Unicom (Hong Kong) Limited (NYSE:CHU), CDW Corporation (NASDAQ:CDW), and TransUnion (NYSE:TRU). This group of stocks' market values are closest to OXY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WY,33,400683,-2 CMS,30,500702,2 WST,27,379097,0 SNN,12,90551,3 CHU,8,42706,2 CDW,40,1179993,4 TRU,47,1628502,3 Average,28.1,603176,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $603 million. That figure was $1759 million in OXY's case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 8 bullish hedge fund positions. Occidental Petroleum Corporation (NYSE:OXY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OXY is 53.8. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately OXY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on OXY were disappointed as the stock returned -30.4% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.