Is SandRidge Energy Inc. (SD) Going To Burn These Hedge Funds ?
We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like SandRidge Energy Inc. (NYSE:SD).
Hedge fund interest in SandRidge Energy Inc. (NYSE:SD) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SD to other stocks including Pingtan Marine Enterprise Ltd. (NASDAQ:PME), IMPAC Mortgage Holdings, Inc (NYSE:IMH), and Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) to get a better sense of its popularity.
Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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John Paulson of Paulson & Co[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a glance at the fresh hedge fund action regarding SandRidge Energy Inc. (NYSE:SD).
How have hedgies been trading SandRidge Energy Inc. (NYSE:SD)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SD over the last 17 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.
The largest stake in SandRidge Energy Inc. (NYSE:SD) was held by Icahn Capital, which reported holding $22.6 million worth of stock at the end of September. It was followed by Cannell Capital with a $10.2 million position. Other investors bullish on the company included Paulson & Co, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to SandRidge Energy Inc. (NYSE:SD), around 3.31% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, setting aside 1.28 percent of its 13F equity portfolio to SD.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Vertex One Asset Management).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as SandRidge Energy Inc. (NYSE:SD) but similarly valued. These stocks are Pingtan Marine Enterprise Ltd. (NASDAQ:PME), IMPAC Mortgage Holdings, Inc (NYSE:IMH), Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), and Taiwan Liposome Company, Ltd. (NASDAQ:TLC). This group of stocks' market values are similar to SD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PME,2,54,1 IMH,5,1546,1 CNST,8,27123,0 TLC,1,474,0 Average,4,7299,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $53 million in SD's case. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is the most popular stock in this table. On the other hand Taiwan Liposome Company, Ltd. (NASDAQ:TLC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks SandRidge Energy Inc. (NYSE:SD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SD were disappointed as the stock returned -30% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
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