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. Keeping this in mind let’s see whether Kosmos Energy Ltd (NYSE:KOS) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Kosmos Energy Ltd (NYSE:KOS) a buy right now? Prominent investors are becoming hopeful. The number of bullish hedge fund bets improved by 5 lately. Our calculations also showed that KOS 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).
To the average investor there are dozens of tools market participants put to use to appraise stocks. Two of the most innovative tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the top money managers can outperform their index-focused peers by a solid margin (see the details here).
Joel Greenblatt of Gotham Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 we’re going to take a glance at the new hedge fund action encompassing Kosmos Energy Ltd (NYSE:KOS).
How have hedgies been trading Kosmos Energy Ltd (NYSE:KOS)?
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KOS over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Kosmos Energy Ltd (NYSE:KOS), with a stake worth $17.9 million reported as of the end of September. Trailing AQR Capital Management was Deep Basin Capital, which amassed a stake valued at $16.3 million. Two Sigma Advisors, D E Shaw, and Arosa Capital Management 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 Elm Ridge Capital allocated the biggest weight to Kosmos Energy Ltd (NYSE:KOS), around 4.5% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 1.88 percent of its 13F equity portfolio to KOS.
As industrywide interest jumped, key money managers have jumped into Kosmos Energy Ltd (NYSE:KOS) headfirst. Renaissance Technologies, initiated the biggest position in Kosmos Energy Ltd (NYSE:KOS). Renaissance Technologies had $5.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $3 million position during the quarter. The other funds with brand new KOS positions are Joel Greenblatt’s Gotham Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Mika Toikka’s AlphaCrest Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Kosmos Energy Ltd (NYSE:KOS) but similarly valued. We will take a look at Scorpio Tankers Inc. (NYSE:STNG), John Wiley & Sons Inc (NYSE:JW), Seritage Growth Properties (NYSE:SRG), and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). All of these stocks’ market caps are closest to KOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STNG | 33 | 233788 | 8 |
| JW | 21 | 81448 | 1 |
| SRG | 15 | 353030 | 1 |
| ARNA | 33 | 293454 | 3 |
| Average | 25.5 | 240430 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $133 million in KOS’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Seritage Growth Properties (NYSE:SRG) is the least popular one with only 15 bullish hedge fund positions. Kosmos Energy Ltd (NYSE:KOS) 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately KOS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KOS were disappointed as the stock returned -81.1% 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.
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.
