While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 WPX Energy Inc (NYSE:WPX) and see how the stock performed in comparison to hedge funds’ consensus picks.
WPX Energy Inc (NYSE:WPX) was in 44 hedge funds’ portfolios at the end of September. WPX has seen an increase in activity from the world’s largest hedge funds lately. There were 40 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 Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Leon Cooperman of Omega Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to analyze the fresh hedge fund action encompassing WPX Energy Inc (NYSE:WPX).
How are hedge funds trading WPX Energy Inc (NYSE:WPX)?
Heading into the fourth quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WPX over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the number one position in WPX Energy Inc (NYSE:WPX). Adage Capital Management has a $88.1 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $82.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish contain Israel Englander’s Millennium Management, Leon Cooperman’s Omega Advisors and Ric Dillon’s Diamond Hill Capital. In terms of the portfolio weights assigned to each position GeoSphere Capital Management allocated the biggest weight to WPX Energy Inc (NYSE:WPX), around 8.1% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 4.96 percent of its 13F equity portfolio to WPX.
As industrywide interest jumped, specific money managers have jumped into WPX Energy Inc (NYSE:WPX) headfirst. Rubric Capital Management, managed by David Rosen, initiated the most outsized position in WPX Energy Inc (NYSE:WPX). Rubric Capital Management had $6.7 million invested in the company at the end of the quarter. Guy Shahar’s DSAM Partners also initiated a $4.8 million position during the quarter. The following funds were also among the new WPX investors: Wayne Cooperman’s Cobalt Capital Management, David Harding’s Winton Capital Management, and Phil Frohlich’s Prescott Group Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to WPX Energy Inc (NYSE:WPX). We will take a look at Landstar System, Inc. (NASDAQ:LSTR), The Macerich Company (NYSE:MAC), Selective Insurance Group, Inc. (NASDAQ:SIGI), and W.R. Grace & Co. (NYSE:GRA). This group of stocks’ market values match WPX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LSTR | 19 | 191180 | -3 |
| MAC | 22 | 136466 | 1 |
| SIGI | 24 | 120207 | 10 |
| GRA | 38 | 1653754 | 2 |
| Average | 25.75 | 525402 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $583 million in WPX’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Landstar System, Inc. (NASDAQ:LSTR) is the least popular one with only 19 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 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 18.2% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
