One of the best tools in ordinary investors’ arsenal is 13F filings. Once a quarter hedge funds with at least $100 million in total positions in publicly traded US stocks/options and convertible debt are required to open the kimono and disclose the number of shares and the total value of its positions in each of the stocks and options in their portfolios. This quarter we processed 752 filings from hedge funds and prominent investors.
Hedge funds hire some of the smartest Ivy League graduates as their analysts, have access to industry insiders whom they “consult” with, unconventional data sources that cost tens of thousands of dollars, years of experience and millions of dollars as incentives to come up with the next great investment idea. Every quarter we process around 750 hedge funds’ 13F filings to identify each hedge fund’s new moves, top stock picks, and more importantly overall sentiment changes towards each of the 4000 stocks that are publicly trading. We publish all of our analysis in our premium quarterly newsletter (download a free sample), and then share interesting bits and pieces on our website.
Last month we published the list of 30 most popular stocks among hedge funds. This list’s top 20 stock picks have been performing much better than the market indices that you see on your financial news websites and channels. During the first 11 months of 2019 the top 20 most popular hedge fund stocks returned 37% and outperformed the S&P 500 Index by 9.9 percentage points. If you have $500,000 invested in an index fund that tracks the market, you left $50,000 on the table this year by not imitating hedge funds’ top 20 stock picks instead.
Previously we listed the 5 mega-cap stocks that hedge funds are crazy about (stocks with at least $100 billion in market capitalization), 5 very large-cap stocks hedge funds are buying (market caps between $60 billion and 100 billion), and 5 large-cap stocks hedge funds are piling into (market caps between $20 billion and $60 billion). We also listed the top 5 financial stocks, top 5 media stocks as well as hedge funds’ top 5 healthcare stock picks. In this article we will take a look at hedge fund’s favorite energy stock picks.
Energy stocks are out of favor. Exxon Mobil Corporation (NYSE:XOM) was the most valuable stock in America 10 years ago, ahead of Apple, Microsoft, Google, and Amazon. Today, hedge fund sentiment towards Exxon Mobil Corporation is at its all time low. Investors are cashing out of energy focused ETFs which means cheap and healthy energy stocks are sold along side the troubled and bankruptcy-bound energy stocks. Here is what one hedge fund manager said about eenrgy stocks in a blog post:
“There’s nothing wrong with my energy plays. They’re cheap by historical standards and cheap compared with competitors. Antero is fully hedged—they literally don’t even care what happens to natural gas prices. The computers don’t care either—Antero is lumped in with a massive basket of energy names that are traded as a group. In today’s market, share price appreciation is only based on the strength of the trend. Oil has been chopping around in a $50 by $65 range. Natural gas is $2 by $3. There is no trend. Due to shale, these commodity prices are somewhat capped as supply ramps each time we get near the top of the price range.
The energy stocks I chose are insanely cheap, they’re creating value, but the computers don’t care. Small-cap energy names are in energy ETFs with outflows, they’re owned by funds getting redeemed. I should have waited to buy these until I saw a trend higher in energy prices. That’s coming, but we need another few years to chew through Tier 1 shale inventory first. My mistake was assuming today’s market is like historic markets that looked ahead a year or two and used fundamental analysis to separate the winners and losers early in the process. Instead, I need to be buying energy names AFTER the inflection is obvious. Sure, I won’t get the absolute low tick, but even buying 20% off the lows won’t matter once the trend is in motion. Most of these names are ten and twenty baggers from today’s prices—there will still be plenty of meat on the bone, even if I pay up—especially if energy prices are actually increasing.”
Our calculations also showed that none of the energy stocks were among the 30 most popular stocks among hedge funds recently (click for Q3 rankings and see the video below for Q2 rankings). This clearly shows that even shrewd hedge funds are avoiding energy stocks. Nevertheless, there are some energy stocks (and not necessarily the biggest energy companies) among the top 100. Hedge funds #1 energy stock pick also outperformed the market in Q4 by 3.5 percentage points.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Below is our list of the top 5 energy stocks to hedge funds were buying despite the overall negative sentiment towards this industry:
5. Chevron Corporation (NYSE:CVX): $118
Number of Hedge Funds: 48
Total Dollar Amount of Long Hedge Fund Positions:$1.8 billion
Percent of Hedge Funds with Long Positions: 6.4%
Fourth Quarter Return: 0.5%
Popularity Ranking (Q3): 129
4. Schlumberger Limited (NYSE:SLB): $37
Number of Hedge Funds: 49
Total Dollar Amount of Long Hedge Fund Positions:$1.25 billion
Percent of Hedge Funds with Long Positions: 6.5%
Fourth Quarter Return: 9.5%
Popularity Ranking (Q3): 114
John Rogers of Ariel Investments
3. Occidental Petroleum Corporation (NYSE:OXY): $39
Number of Hedge Funds: 57
Total Dollar Amount of Long Hedge Fund Positions:$2.8 billion
Percent of Hedge Funds with Long Positions: 7.6%
Fourth Quarter Return: -12.3%
Popularity Ranking (Q3): 65
2. Marathon Petroleum Corporation (NYSE:MPC): $60
Number of Hedge Funds: 63
Total Dollar Amount of Long Hedge Fund Positions:$2.9 billion
Percent of Hedge Funds with Long Positions: 8.4%
Fourth Quarter Return: -0.1%
Popularity Ranking (Q3): 57
Paul Singer of Elliott Management
1. ConocoPhillips Company (NYSE:COP): $62
Number of Hedge Funds: 65
Total Dollar Amount of Long Hedge Fund Positions:$2.9 billion
Percent of Hedge Funds with Long Positions: 8.6%
Fourth Quarter Return: 9.6%
Popularity Ranking (Q3): 40
David E. Shaw of D.E. Shaw
Disclosure: None. This article is originally published at Insider Monkey.
