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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Occidental Petroleum Corporation (NYSE:OXY).
Occidental Petroleum Corporation (NYSE:OXY) investors should be aware of a decrease in support from the world's most elite money managers recently. Occidental Petroleum Corporation (NYSE:OXY) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 62. 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Carl Icahn of Icahn Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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. 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 to get excerpts of these letters in your inbox. With all of this in mind let's view the new hedge fund action regarding Occidental Petroleum Corporation (NYSE:OXY).
How have hedgies been trading Occidental Petroleum Corporation (NYSE:OXY)?
Heading into the third quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in 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. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Icahn Capital LP held the most valuable stake in Occidental Petroleum Corporation (NYSE:OXY), which was worth $1621.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $51.8 million worth of shares. 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, designating 8.22 percent of its 13F equity portfolio to OXY.
Due to the fact that Occidental Petroleum Corporation (NYSE:OXY) has witnessed a decline in interest from the smart money, it's easy to see that there was a specific group of fund managers that decided to sell off their full holdings last quarter. At the top of the heap, Warren Buffett's Berkshire Hathaway sold off the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at about $219.2 million in stock. Renaissance Technologies, also dumped its stock, about $33.9 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Occidental Petroleum Corporation (NYSE:OXY). 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). All of these stocks' market caps resemble OXY's market cap.
[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 23% in 2020 through October 30th and beat the market again by 20.1 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 -50.1% 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.