“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Berry Petroleum Corporation (NASDAQ:BRY) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Berry Petroleum Corporation (NASDAQ:BRY) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare BRY to other stocks including Community Trust Bancorp, Inc. (NASDAQ:CTBI), Anika Therapeutics, Inc. (NASDAQ:ANIK), and Monarch Casino & Resort, Inc. (NASDAQ:MCRI) to get a better sense of its popularity.
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Howard Marks of Oaktree Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the latest hedge fund action surrounding Berry Petroleum Corporation (NASDAQ:BRY).
Hedge fund activity in Berry Petroleum Corporation (NASDAQ:BRY)
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in BRY a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Oaktree Capital Management held the most valuable stake in Berry Petroleum Corporation (NASDAQ:BRY), which was worth $120.7 million at the end of the third quarter. On the second spot was Venor Capital Management which amassed $19.3 million worth of shares. Adage Capital Management, Citadel Investment Group, and Deep Basin 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 Venor Capital Management allocated the biggest weight to Berry Petroleum Corporation (NASDAQ:BRY), around 29.12% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, designating 2.37 percent of its 13F equity portfolio to BRY.
Due to the fact that Berry Petroleum Corporation (NASDAQ:BRY) has witnessed falling interest from hedge fund managers, it’s safe to say that there were a few hedgies that elected to cut their entire stakes last quarter. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, comprising close to $9.5 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund sold off about $5.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Berry Petroleum Corporation (NASDAQ:BRY) but similarly valued. These stocks are Community Trust Bancorp, Inc. (NASDAQ:CTBI), Anika Therapeutics, Inc. (NASDAQ:ANIK), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), and Thermon Group Holdings, Inc. (NYSE:THR). This group of stocks’ market values are similar to BRY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTBI | 7 | 17795 | 1 |
| ANIK | 17 | 94464 | 1 |
| MCRI | 11 | 117028 | 3 |
| THR | 12 | 39394 | 2 |
| Average | 11.75 | 67170 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $167 million in BRY’s case. Anika Therapeutics, Inc. (NASDAQ:ANIK) is the most popular stock in this table. On the other hand Community Trust Bancorp, Inc. (NASDAQ:CTBI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Berry Petroleum Corporation (NASDAQ:BRY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BRY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BRY were disappointed as the stock returned -14.9% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
