Hedge Funds Never Been Less Bullish On Continental Resources, Inc. (CLR)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Continental Resources, Inc. (NYSE:CLR) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Continental Resources, Inc. (NYSE:CLR) a good investment today? Hedge funds were in a bearish mood. The number of long hedge fund bets shrunk by 3 lately. Continental Resources, Inc. (NYSE:CLR) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 50. Our calculations also showed that CLR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are seen as slow, old financial tools of years past. While there are greater than 8000 funds trading today, Our researchers look at the crème de la crème of this club, about 850 funds. These investment experts administer the majority of all hedge funds’ total capital, and by shadowing their best picks, Insider Monkey has unsheathed many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover 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 and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to review the latest hedge fund action encompassing Continental Resources, Inc. (NYSE:CLR).

Hedge fund activity in Continental Resources, Inc. (NYSE:CLR)

At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in CLR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Continental Resources, Inc. (NYSE:CLR) was held by Arrowstreet Capital, which reported holding $54.7 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $38.7 million position. Other investors bullish on the company included D E Shaw, Carlson Capital, and Deep Basin Capital. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Continental Resources, Inc. (NYSE:CLR), around 1.4% of its 13F portfolio. Birchview Capital is also relatively very bullish on the stock, earmarking 0.41 percent of its 13F equity portfolio to CLR.

Due to the fact that Continental Resources, Inc. (NYSE:CLR) has experienced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedge funds that slashed their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $5.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $5.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Continental Resources, Inc. (NYSE:CLR). These stocks are Pan American Silver Corp. (NASDAQ:PAAS), Williams-Sonoma, Inc. (NYSE:WSM), Proofpoint Inc (NASDAQ:PFPT), Gentex Corporation (NASDAQ:GNTX), Pentair plc (NYSE:PNR), Bruker Corporation (NASDAQ:BRKR), and TIM Participacoes SA (NYSE:TSU). This group of stocks’ market valuations are closest to CLR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $426 million. That figure was $153 million in CLR’s case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 15 bullish hedge fund positions. Continental Resources, Inc. (NYSE:CLR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CLR is 33.2. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately CLR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CLR investors were disappointed as the stock returned -29.9% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.