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. Keeping this in mind let’s see whether Diamondback Energy Inc (NASDAQ:FANG) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Diamondback Energy Inc (NASDAQ:FANG) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 44 hedge funds’ portfolios at the end of December. At the end of this article we will also compare FANG to other stocks including Celanese Corporation (NYSE:CE), CNH Industrial NV (NYSE:CNHI), and Evergy, Inc. (NYSE:EVRG) to get a better sense of its popularity.
At the moment there are several indicators shareholders put to use to evaluate their holdings. A duo of the less known indicators are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can beat the broader indices by a healthy amount (see the details here).
Keith Meister of Corvex Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing Diamondback Energy Inc (NASDAQ:FANG).
What does smart money think about Diamondback Energy Inc (NASDAQ:FANG)?
Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FANG over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Corvex Capital held the most valuable stake in Diamondback Energy Inc (NASDAQ:FANG), which was worth $142.8 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $86.3 million worth of shares. Citadel Investment Group, Millennium Management, and Carlson 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 Corvex Capital allocated the biggest weight to Diamondback Energy Inc (NASDAQ:FANG), around 6.58% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 5.3 percent of its 13F equity portfolio to FANG.
Judging by the fact that Diamondback Energy Inc (NASDAQ:FANG) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that slashed their entire stakes last quarter. Interestingly, Brandon Haley’s Holocene Advisors dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at about $35 million in stock. Principal Global Investors’s fund, Columbus Circle Investors, also dropped its stock, about $18.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Diamondback Energy Inc (NASDAQ:FANG). We will take a look at Celanese Corporation (NYSE:CE), CNH Industrial NV (NYSE:CNHI), Evergy, Inc. (NYSE:EVRG), and Cardinal Health, Inc. (NYSE:CAH). This group of stocks’ market valuations match FANG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CE | 31 | 924932 | 10 |
| CNHI | 16 | 333220 | -1 |
| EVRG | 25 | 942248 | -2 |
| CAH | 34 | 667856 | 6 |
| Average | 26.5 | 717064 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $717 million. That figure was $713 million in FANG’s case. Cardinal Health, Inc. (NYSE:CAH) is the most popular stock in this table. On the other hand CNH Industrial NV (NYSE:CNHI) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Diamondback Energy Inc (NASDAQ:FANG) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately FANG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FANG were disappointed as the stock returned -56.4% during the four months of 2020 (through May 1st) 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 most of these stocks already outperformed the market in 2020.
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.
