Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Cenovus Energy Inc (NYSE:CVE) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Cenovus Energy Inc (NYSE:CVE) shareholders have witnessed an increase in enthusiasm from smart money in recent months. Our calculations also showed that CVE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s take a glance at the latest hedge fund action surrounding Cenovus Energy Inc (NYSE:CVE).
Hedge fund activity in Cenovus Energy Inc (NYSE:CVE)
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVE over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Cenovus Energy Inc (NYSE:CVE), which was worth $222.3 million at the end of the third quarter. On the second spot was Luminus Management which amassed $76.7 million worth of shares. MAK Capital One, Citadel Investment Group, and Schonfeld Strategic Advisors 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 MAK Capital One allocated the biggest weight to Cenovus Energy Inc (NYSE:CVE), around 17.96% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, dishing out 9.71 percent of its 13F equity portfolio to CVE.
As aggregate interest increased, specific money managers have been driving this bullishness. Scion Asset Management, managed by Michael Burry, created the most valuable position in Cenovus Energy Inc (NYSE:CVE). Scion Asset Management had $6.1 million invested in the company at the end of the quarter. George Soros’s Soros Fund Management also made a $3 million investment in the stock during the quarter. The other funds with brand new CVE positions are Steve Cohen’s Point72 Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cenovus Energy Inc (NYSE:CVE) but similarly valued. We will take a look at J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), Raymond James Financial, Inc. (NYSE:RJF), and Slack Technologies Inc (NYSE:WORK). This group of stocks’ market valuations are similar to CVE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JBHT | 28 | 321794 | 2 |
| NCLH | 38 | 1090154 | 4 |
| RJF | 28 | 750978 | -1 |
| WORK | 29 | 294837 | 0 |
| Average | 30.75 | 614441 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $614 million. That figure was $579 million in CVE’s case. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is the most popular stock in this table. On the other hand J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is the least popular one with only 28 bullish hedge fund positions. Cenovus Energy Inc (NYSE:CVE) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CVE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CVE were disappointed as the stock returned -75.5% 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 20 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.
