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Were Hedge Funds Right About BP plc (BP)?

Reymerlyn Martin

Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards BP plc (NYSE:BP).

Is BP plc (NYSE:BP) an exceptional investment now? The smart money is becoming hopeful. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that BP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Today there are a lot of methods shareholders employ to evaluate publicly traded companies. Two of the most useful methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top money managers can outclass the market by a superb amount (see the details here).

[caption id="attachment_255014" align="aligncenter" width="400"] Clint Carlson of Carlson Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to analyze the latest hedge fund action encompassing BP plc (NYSE:BP).

What have hedge funds been doing with BP plc (NYSE:BP)?

At Q4's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in BP a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in BP plc (NYSE:BP), which was worth $645 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $347.1 million worth of shares. Orbis Investment Management, Millennium Management, and Citadel Investment Group 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 Kahn Brothers allocated the biggest weight to BP plc (NYSE:BP), around 7.43% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 4.84 percent of its 13F equity portfolio to BP.

Now, key money managers were breaking ground themselves. Carlson Capital, managed by Clint Carlson, established the most outsized position in BP plc (NYSE:BP). Carlson Capital had $16.8 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also made a $2.6 million investment in the stock during the quarter. The following funds were also among the new BP investors: Allan Teh's Kamunting Street Capital, Donald Sussman's Paloma Partners, and Ed Beddow and William Tichy's Beddow Capital Management.

Let's go over hedge fund activity in other stocks similar to BP plc (NYSE:BP). These stocks are Paypal Holdings Inc (NASDAQ:PYPL), Honeywell International Inc. (NYSE:HON), Eli Lilly and Company (NYSE:LLY), and Sanofi (NASDAQ:SNY). This group of stocks' market values are similar to BP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PYPL,126,6225698,22 HON,55,2282262,-3 LLY,43,1493296,-1 SNY,31,1113585,3 Average,63.75,2778710,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.75 hedge funds with bullish positions and the average amount invested in these stocks was $2779 million. That figure was $1634 million in BP's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 31 bullish hedge fund positions. BP plc (NYSE:BP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately BP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BP investors were disappointed as the stock returned -49.2% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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

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