Cheniere Energy (LNG): Klarman Is Gone, See Who Else Was Selling

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cheniere Energy, Inc. (NYSE:LNG) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Cheniere Energy, Inc. (NYSE:LNG) investors should be aware of a decrease in hedge fund interest lately. Cheniere Energy, Inc. (NYSE:LNG) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 62. There were 39 hedge funds in our database with LNG positions at the end of the first quarter. Our calculations also showed that LNG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a peek at the key hedge fund action surrounding Cheniere Energy, Inc. (NYSE:LNG).

What have hedge funds been doing with Cheniere Energy, Inc. (NYSE:LNG)?

At second quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards LNG over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Icahn Capital LP held the most valuable stake in Cheniere Energy, Inc. (NYSE:LNG), which was worth $1006 million at the end of the third quarter. On the second spot was Kensico Capital which amassed $296 million worth of shares. Zimmer Partners, MFN Partners, and Steadfast Capital Management 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 MFN Partners allocated the biggest weight to Cheniere Energy, Inc. (NYSE:LNG), around 19.21% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, setting aside 8.64 percent of its 13F equity portfolio to LNG.

Because Cheniere Energy, Inc. (NYSE:LNG) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that slashed their positions entirely heading into Q3. Intriguingly, Seth Klarman’s Baupost Group dumped the largest stake of the 750 funds followed by Insider Monkey, worth close to $272.2 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $26.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cheniere Energy, Inc. (NYSE:LNG) but similarly valued. We will take a look at Atmos Energy Corporation (NYSE:ATO), Fair Isaac Corporation (NYSE:FICO), GDS Holdings Limited (NASDAQ:GDS), Brookfield Infrastructure Partners L.P. (NYSE:BIP), The J.M. Smucker Company (NYSE:SJM), W.P. Carey Inc. (NYSE:WPC), and LINE Corporation (NYSE:LN). This group of stocks’ market valuations resemble LNG’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $2124 million in LNG’s case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 8 bullish hedge fund positions. Cheniere Energy, Inc. (NYSE:LNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LNG is 65.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately LNG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LNG were disappointed as the stock returned 7.7% 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 10 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.