In this article we will take a look at whether hedge funds think Chesapeake Energy Corporation (NASDAQ:CHK) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Chesapeake Energy Corporation (NASDAQ:CHK) was in 43 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CHK shareholders have witnessed an increase in hedge fund sentiment recently. There were 42 hedge funds in our database with CHK holdings at the end of March. Our calculations also showed that CHK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 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.
Marc Lasry of Avenue Capital
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Do Hedge Funds Think CHK Is A Good Stock To Buy Now?
At Q2’s end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in CHK a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Oaktree Capital Management was the largest shareholder of Chesapeake Energy Corporation (NASDAQ:CHK), with a stake worth $619.9 million reported as of the end of June. Trailing Oaktree Capital Management was D E Shaw, which amassed a stake valued at $323.2 million. Glendon Capital Management, Slate Path Capital, and Brigade 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 Avenue Capital allocated the biggest weight to Chesapeake Energy Corporation (NASDAQ:CHK), around 21.83% of its 13F portfolio. Alta Fundamental Advisers is also relatively very bullish on the stock, dishing out 15 percent of its 13F equity portfolio to CHK.
Consequently, key hedge funds were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the largest position in Chesapeake Energy Corporation (NASDAQ:CHK). Adage Capital Management had $68.7 million invested in the company at the end of the quarter. Marc Lasry’s Avenue Capital also initiated a $47.3 million position during the quarter. The other funds with brand new CHK positions are Renaissance Technologies, Howard Marks’s Oaktree Capital Management, and Mark Coe’s Intrinsic Edge Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Chesapeake Energy Corporation (NASDAQ:CHK) but similarly valued. We will take a look at Clean Harbors Inc (NYSE:CLH), Essent Group Ltd (NYSE:ESNT), Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS), SunPower Corporation (NASDAQ:SPWR), RBC Bearings Incorporated (NASDAQ:ROLL), Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX), and MSC Industrial Direct Co Inc (NYSE:MSM). All of these stocks’ market caps are closest to CHK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLH | 24 | 359968 | -3 |
| ESNT | 22 | 318403 | -2 |
| SBS | 11 | 255465 | 1 |
| SPWR | 25 | 231783 | 7 |
| ROLL | 9 | 37769 | -1 |
| OCDX | 21 | 234023 | -2 |
| MSM | 18 | 385991 | -2 |
| Average | 18.6 | 260486 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.6 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $1915 million in CHK’s case. SunPower Corporation (NASDAQ:SPWR) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Chesapeake Energy Corporation (NASDAQ:CHK) is more popular among hedge funds. Our overall hedge fund sentiment score for CHK is 86. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 22.9% in 2021 through October 1st but still managed to beat the market by 5.6 percentage points. Hedge funds were also right about betting on CHK as the stock returned 20.4% since the end of June (through 10/1) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
