Hedge Funds Have Never Been This Bullish On Chesapeake Energy Corporation (CHK)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Chesapeake Energy Corporation (NYSE:CHK).

Chesapeake Energy Corporation (NYSE:CHK) was in 42 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CHK has experienced an increase in hedge fund sentiment in recent months. Our calculations also showed that CHK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Howard Marks of Oaktree Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to view the new hedge fund action encompassing Chesapeake Energy Corporation (NYSE:CHK).

Do Hedge Funds Think CHK Is A Good Stock To Buy Now?

At first quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42 from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in CHK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Oaktree Capital Management was the largest shareholder of Chesapeake Energy Corporation (NYSE:CHK), with a stake worth $518 million reported as of the end of March. Trailing Oaktree Capital Management was D E Shaw, which amassed a stake valued at $270.1 million. Glendon Capital Management, Appaloosa Management LP, and Anchorage 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 Glendon Capital Management allocated the biggest weight to Chesapeake Energy Corporation (NYSE:CHK), around 17.75% of its 13F portfolio. Alta Fundamental Advisers is also relatively very bullish on the stock, designating 17.12 percent of its 13F equity portfolio to CHK.

Now, key money managers were leading the bulls’ herd. Oaktree Capital Management, managed by Howard Marks, created the largest position in Chesapeake Energy Corporation (NYSE:CHK). Oaktree Capital Management had $518 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $270.1 million position during the quarter. The following funds were also among the new CHK investors: Matthew Barrett’s Glendon Capital Management, David Tepper’s Appaloosa Management LP, and Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Chesapeake Energy Corporation (NYSE:CHK). These stocks are Teradata Corporation (NYSE:TDC), John Bean Technologies Corporation (NYSE:JBT), AdaptHealth Corp. (NASDAQ:AHCO), World Wrestling Entertainment, Inc. (NYSE:WWE), 51job, Inc. (NASDAQ:JOBS), UniFirst Corp (NYSE:UNF), and PNM Resources, Inc. (NYSE:PNM). All of these stocks’ market caps match CHK’s market cap.

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As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $1822 million in CHK’s case. Teradata Corporation (NYSE:TDC) is the most popular stock in this table. On the other hand AdaptHealth Corp. (NASDAQ:AHCO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Chesapeake Energy Corporation (NYSE:CHK) is more popular among hedge funds. Our overall hedge fund sentiment score for CHK is 90. 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 17.4% in 2021 through June 18th but still managed to beat the market by 6.1 percentage points. Hedge funds were also right about betting on CHK as the stock returned 23.2% since the end of March (through 6/18) 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.

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