Did Hedge Funds Make The Right Call On CVR Energy, Inc. (CVI) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of CVR Energy, Inc. (NYSE:CVI) based on that data and determine whether they were really smart about the stock.

CVR Energy, Inc. (NYSE:CVI) has seen a decrease in hedge fund sentiment lately. Our calculations also showed that CVI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Carl Icahn of Icahn Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a gander at the latest hedge fund action encompassing CVR Energy, Inc. (NYSE:CVI).

How have hedgies been trading CVR Energy, Inc. (NYSE:CVI)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -39% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in CVI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in CVR Energy, Inc. (NYSE:CVI) was held by Icahn Capital LP, which reported holding $1176.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $45.7 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and Gotham Asset Management. In terms of the portfolio weights assigned to each position Icahn Capital LP allocated the biggest weight to CVR Energy, Inc. (NYSE:CVI), around 6.54% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.38 percent of its 13F equity portfolio to CVI.

Due to the fact that CVR Energy, Inc. (NYSE:CVI) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers who sold off their full holdings heading into Q4. Interestingly, Ken Griffin’s Citadel Investment Group dumped the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $5.4 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $4.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 12 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to CVR Energy, Inc. (NYSE:CVI). These stocks are Federal Signal Corporation (NYSE:FSS), Ameris Bancorp (NASDAQ:ABCB), World Fuel Services Corporation (NYSE:INT), and New Fortress Energy LLC (NASDAQ:NFE). This group of stocks’ market values match CVI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $1244 million in CVI’s case. Federal Signal Corporation (NYSE:FSS) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks CVR Energy, Inc. (NYSE:CVI) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately CVI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CVI were disappointed as the stock returned 20.5% since the end of the first quarter 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.

Disclosure: None. This article was originally published at Insider Monkey.