We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of WPX Energy Inc (NYSE:WPX).
WPX Energy Inc (NYSE:WPX) has experienced a decrease in support from the world's most elite money managers recently. WPX was in 44 hedge funds' portfolios at the end of December. There were 47 hedge funds in our database with WPX positions at the end of the previous quarter. Our calculations also showed that WPX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Leon Cooperman of Omega Advisors[/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. With all of this in mind let's view the fresh hedge fund action encompassing WPX Energy Inc (NYSE:WPX).
What have hedge funds been doing with WPX Energy Inc (NYSE:WPX)?
Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WPX over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in WPX Energy Inc (NYSE:WPX), which was worth $129.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $113.4 million worth of shares. Omega Advisors, Adage Capital Management, and Diamond Hill Capital 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 WPX Energy Inc (NYSE:WPX), around 6.24% of its 13F portfolio. BeaconLight Capital is also relatively very bullish on the stock, earmarking 4.77 percent of its 13F equity portfolio to WPX.
Because WPX Energy Inc (NYSE:WPX) has experienced bearish sentiment from the smart money, it's easy to see that there were a few fund managers that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Brandon Haley's Holocene Advisors said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, totaling about $10.3 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund sold off about $8.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to WPX Energy Inc (NYSE:WPX). These stocks are Manpowergroup Inc (NYSE:MAN), First Citizens BancShares Inc. (NASDAQ:FCNCA), KT Corporation (NYSE:KT), and Williams-Sonoma, Inc. (NYSE:WSM). All of these stocks' market caps are closest to WPX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAN,27,476316,7 FCNCA,23,200352,5 KT,17,259132,-5 WSM,29,336409,3 Average,24,318052,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $746 million in WPX's case. Williams-Sonoma, Inc. (NYSE:WSM) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks WPX Energy Inc (NYSE:WPX) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately WPX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WPX were disappointed as the stock returned -76.1% during the first two and a half months of 2020 (through March 25th) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.