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Were Hedge Funds Right About Dumping HighPoint Resources Corporation (HPR)?

Nina Todic

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

HighPoint Resources Corporation (NYSE:HPR) shareholders have witnessed a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that HPR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Joe Huber - Huber Capital Management

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. We're going to take a gander at the recent hedge fund action encompassing HighPoint Resources Corporation (NYSE:HPR).

Hedge fund activity in HighPoint Resources Corporation (NYSE:HPR)

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HPR over the last 16 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with HPR Positions

According to Insider Monkey's hedge fund database, Divisar Capital, managed by Steven Baughman, holds the number one position in HighPoint Resources Corporation (NYSE:HPR). Divisar Capital has a $16.9 million position in the stock, comprising 5.8% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $14.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions include Joe Huber's Huber Capital Management, Brett Hendrickson's Nokomis Capital and John Overdeck and David Siegel's Two Sigma Advisors.

Since HighPoint Resources Corporation (NYSE:HPR) has experienced a decline in interest from the smart money, logic holds that there exists a select few fund managers that elected to cut their full holdings by the end of the second quarter. Interestingly, Chuck Royce's Royce & Associates dumped the largest investment of all the hedgies monitored by Insider Monkey, worth close to $1.9 million in stock, and Brian C. Freckmann's Lyon Street Capital was right behind this move, as the fund cut about $0.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks similar to HighPoint Resources Corporation (NYSE:HPR). These stocks are Ciner Resources LP (NYSE:CINR), Synchronoss Technologies, Inc. (NASDAQ:SNCR), COMSCORE, Inc. (NASDAQ:SCOR), and West Bancorporation, Inc. (NASDAQ:WTBA). This group of stocks' market caps are similar to HPR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CINR,1,5332,0 SNCR,8,34919,-4 SCOR,17,82124,3 WTBA,4,8432,2 Average,7.5,32702,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $48 million in HPR's case. COMSCORE, Inc. (NASDAQ:SCOR) is the most popular stock in this table. On the other hand Ciner Resources LP (NYSE:CINR) is the least popular one with only 1 bullish hedge fund positions. HighPoint Resources Corporation (NYSE:HPR) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HPR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HPR were disappointed as the stock returned -12.6% during the third 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 many of these stocks already outperformed the market so far this year.

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

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