We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of CVR Energy, Inc. (NYSE:CVI).
Is CVR Energy, Inc. (NYSE:CVI) a buy, sell, or hold? Hedge funds are betting on the stock. The number of long hedge fund positions inched up by 3 in recent months. Our calculations also showed that CVI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that 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.
Carl Icahn of Icahn Capital
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. Keeping this in mind we’re going to analyze the latest hedge fund action regarding CVR Energy, Inc. (NYSE:CVI).
What does smart money think about CVR Energy, Inc. (NYSE:CVI)?
Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVI over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carl Icahn’s Icahn Capital LP has the number one position in CVR Energy, Inc. (NYSE:CVI), worth close to $2.8786 billion, comprising 11% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $97 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Joel Greenblatt’s 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 11% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.54 percent of its 13F equity portfolio to CVI.
As one would reasonably expect, key hedge funds have been driving this bullishness. Winton Capital Management, managed by David Harding, initiated the largest position in CVR Energy, Inc. (NYSE:CVI). Winton Capital Management had $1 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Roger Ibbotson’s Zebra Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Jinghua Yan’s TwinBeech Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CVR Energy, Inc. (NYSE:CVI) but similarly valued. We will take a look at Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Wintrust Financial Corporation (NASDAQ:WTFC), PNM Resources, Inc. (NYSE:PNM), and RLI Corp. (NYSE:RLI). This group of stocks’ market caps resemble CVI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICPT | 27 | 485264 | 4 |
| WTFC | 21 | 274629 | 1 |
| PNM | 19 | 367854 | 3 |
| RLI | 25 | 229633 | 9 |
| Average | 23 | 339345 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $339 million. That figure was $3034 million in CVI’s case. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is the most popular stock in this table. On the other hand PNM Resources, Inc. (NYSE:PNM) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks CVR Energy, Inc. (NYSE:CVI) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately CVI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CVI were disappointed as the stock returned -60.6% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
