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Was The Smart Money Right About Devon Energy (DVN)?

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·6 min read
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In this article we will take a look at whether hedge funds think Devon Energy Corporation (NYSE:DVN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Devon Energy Corporation (NYSE:DVN) the right investment to pursue these days? The best stock pickers were taking an optimistic view. The number of long hedge fund bets inched up by 1 lately. Devon Energy Corporation (NYSE:DVN) was in 45 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 61. Our calculations also showed that DVN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 44 hedge funds in our database with DVN holdings at the end of September.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's take a look at the fresh hedge fund action encompassing Devon Energy Corporation (NYSE:DVN).

Do Hedge Funds Think DVN Is A Good Stock To Buy Now?

At the end of December, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in DVN over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DVN A Good Stock To Buy?
Is DVN A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Devon Energy Corporation (NYSE:DVN), with a stake worth $90.3 million reported as of the end of December. Trailing Citadel Investment Group was Arrowstreet Capital, which amassed a stake valued at $80.4 million. Two Sigma Advisors, Millennium Management, and Fisher 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 SIR Capital Management allocated the biggest weight to Devon Energy Corporation (NYSE:DVN), around 6.63% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, dishing out 3 percent of its 13F equity portfolio to DVN.

As one would reasonably expect, specific money managers were breaking ground themselves. Impala Asset Management, managed by Robert Bishop, created the largest position in Devon Energy Corporation (NYSE:DVN). Impala Asset Management had $33.3 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $33.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Zach Schreiber's Point State Capital, Benjamin A. Smith's Laurion Capital Management, and Mark Coe's Intrinsic Edge Capital.

Let's now review hedge fund activity in other stocks similar to Devon Energy Corporation (NYSE:DVN). We will take a look at Western Alliance Bancorporation (NYSE:WAL), Targa Resources Corp (NYSE:TRGP), LG Display Co Ltd. (NYSE:LPL), Shift4 Payments, Inc. (NYSE:FOUR), Phillips 66 Partners LP (NYSE:PSXP), PLDT Inc. (NYSE:PHI), and Haemonetics Corporation (NYSE:HAE). All of these stocks' market caps are similar to DVN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WAL,22,112754,-6 TRGP,29,488973,-1 LPL,7,19777,0 FOUR,38,560795,6 PSXP,4,36141,0 PHI,4,94680,-4 HAE,32,691644,0 Average,19.4,286395,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $286 million. That figure was $709 million in DVN's case. Shift4 Payments, Inc. (NYSE:FOUR) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Devon Energy Corporation (NYSE:DVN) is more popular among hedge funds. Our overall hedge fund sentiment score for DVN is 78.1. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on DVN as the stock returned 49.7% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.

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