How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding SandRidge Energy Inc. (NYSE:SD) and determine whether hedge funds had an edge regarding this stock.
SandRidge Energy Inc. (NYSE:SD) was in 12 hedge funds’ portfolios at the end of March. SD has experienced a decrease in activity from the world’s largest hedge funds of late. There were 14 hedge funds in our database with SD positions at the end of the previous quarter. Our calculations also showed that SD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
J. Carlo Cannell of Cannell Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the new hedge fund action regarding SandRidge Energy Inc. (NYSE:SD).
How are hedge funds trading SandRidge Energy Inc. (NYSE:SD)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SD over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Carl Icahn’s Icahn Capital LP has the largest position in SandRidge Energy Inc. (NYSE:SD), worth close to $4.3 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Cannell Capital, managed by J. Carlo Cannell, which holds a $2.4 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions contain Renaissance Technologies, John Paulson’s Paulson & Co and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to SandRidge Energy Inc. (NYSE:SD), around 1.01% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to SD.
Due to the fact that SandRidge Energy Inc. (NYSE:SD) has faced falling interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies who were dropping their full holdings in the first quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the 750 funds tracked by Insider Monkey, worth an estimated $0.8 million in stock. Scott Kapnick’s fund, HPS Investment Partners, also dropped its stock, about $0.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the first quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SandRidge Energy Inc. (NYSE:SD) but similarly valued. These stocks are Heat Biologics, Inc. (NASDAQ:HTBX), Strata Skin Sciences, Inc. (NASDAQ:SSKN), Tandy Leather Factory, Inc. (NASDAQ:TLF), and Actinium Pharmaceuticals Inc (NYSE:ATNM). All of these stocks’ market caps are closest to SD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTBX | 1 | 1025 | -1 |
| SSKN | 3 | 5598 | -1 |
| TLF | 2 | 10725 | -2 |
| ATNM | 4 | 379 | 0 |
| Average | 2.5 | 4432 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $10 million in SD’s case. Actinium Pharmaceuticals Inc (NYSE:ATNM) is the most popular stock in this table. On the other hand Heat Biologics, Inc. (NASDAQ:HTBX) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks SandRidge Energy Inc. (NYSE:SD) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SD as the stock returned 43.5% in Q2 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.
