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Was The Smart Money Right About Dumping Cheniere Energy, Inc. (LNG)?

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·6 min read
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Is Cheniere Energy, Inc. (NYSE:LNG) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Cheniere Energy, Inc. (NYSE:LNG) shareholders have witnessed a decrease in hedge fund interest in recent months. Cheniere Energy, Inc. (NYSE:LNG) was in 38 hedge funds' portfolios at the end of June. The all time high for this statistics is 62. Our calculations also showed that LNG 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.

At the moment there are dozens of methods shareholders employ to analyze their holdings. Some of the less utilized methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the elite fund managers can outclass the S&P 500 by a solid margin (see the details here).

Hedge Fund Strategies
Hedge Fund Strategies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Our analysis determined that presidential election polls were wrong heading into the 2020 election and we were able to make the most accurate predictions in the country after making adjustments for the biases in existing polls. For example we predicted comfortable Trump victories in Florida, North Carolina, Texas, Iowa, and Ohio. We also predicted a very narrow Biden victory of 0.4 points in Wisconsin when most pollsters were predicting 8 to 10 points Biden victories. We are waiting for the results of 5 more states, but our accuracy rate so far is 100% (see our predictions). You can subscribe to our free daily newsletter on our website to get email alerts whenever we publish an interesting article. Keeping this in mind we're going to go over the new hedge fund action encompassing Cheniere Energy, Inc. (NYSE:LNG).

What does smart money think about Cheniere Energy, Inc. (NYSE:LNG)?

At Q2's end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LNG over the last 20 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is LNG A Good Stock To Buy?
Is LNG A Good Stock To Buy?

More specifically, Icahn Capital LP was the largest shareholder of Cheniere Energy, Inc. (NYSE:LNG), with a stake worth $1006 million reported as of the end of June. Trailing Icahn Capital LP was Kensico Capital, which amassed a stake valued at $296 million. Zimmer Partners, MFN Partners, and Steadfast Capital 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 MFN Partners allocated the biggest weight to Cheniere Energy, Inc. (NYSE:LNG), around 19.21% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, dishing out 8.64 percent of its 13F equity portfolio to LNG.

Since Cheniere Energy, Inc. (NYSE:LNG) has witnessed a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of money managers that slashed their positions entirely by the end of the second quarter. At the top of the heap, Seth Klarman's Baupost Group dropped the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising close to $272.2 million in stock. Steve Cohen's fund, Point72 Asset Management, also said goodbye to its stock, about $26.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks similar to Cheniere Energy, Inc. (NYSE:LNG). We will take a look at Atmos Energy Corporation (NYSE:ATO), Fair Isaac Corporation (NYSE:FICO), GDS Holdings Limited (NASDAQ:GDS), Brookfield Infrastructure Partners L.P. (NYSE:BIP), The J.M. Smucker Company (NYSE:SJM), W.P. Carey Inc. (NYSE:WPC), and LINE Corporation (NYSE:LN). This group of stocks' market caps are similar to LNG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATO,22,152893,1 FICO,36,1222830,-5 GDS,43,2239390,2 BIP,12,52792,-2 SJM,38,673873,2 WPC,23,93673,1 LN,8,116785,1 Average,26,650319,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $2124 million in LNG's case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 8 bullish hedge fund positions. Cheniere Energy, Inc. (NYSE:LNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LNG is 65.2. 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. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately LNG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on LNG were disappointed as the stock returned -0.9% since the end of June (through 10/30) 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.

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