Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 Apache Corporation (NYSE:APA).
Is Apache Corporation (NYSE:APA) a buy here? Investors who are in the know are turning bullish. The number of long hedge fund bets rose by 6 lately. Our calculations also showed that APA 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). APA was in 34 hedge funds’ portfolios at the end of December. There were 28 hedge funds in our database with APA holdings at the end of the previous quarter.
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.
Paul Tudor Jones of Tudor Investment Corp
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 take a gander at the latest hedge fund action encompassing Apache Corporation (NYSE:APA).
What have hedge funds been doing with Apache Corporation (NYSE:APA)?
At the end of the fourth quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards APA over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Orbis Investment Management was the largest shareholder of Apache Corporation (NYSE:APA), with a stake worth $407.2 million reported as of the end of September. Trailing Orbis Investment Management was Citadel Investment Group, which amassed a stake valued at $66.2 million. Citadel Investment Group, Two Sigma Advisors, and Renaissance Technologies 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 Orbis Investment Management allocated the biggest weight to Apache Corporation (NYSE:APA), around 2.84% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, setting aside 2.44 percent of its 13F equity portfolio to APA.
Now, key hedge funds were breaking ground themselves. Renaissance Technologies, established the biggest position in Apache Corporation (NYSE:APA). Renaissance Technologies had $26 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $12.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Till Bechtolsheimer’s Arosa Capital Management, Sara Nainzadeh’s Centenus Global Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks similar to Apache Corporation (NYSE:APA). These stocks are DXC Technology Company (NYSE:DXC), Sarepta Therapeutics Inc (NASDAQ:SRPT), DaVita Inc (NYSE:DVA), and TechnipFMC plc (NYSE:FTI). All of these stocks’ market caps are closest to APA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DXC | 47 | 1481279 | 6 |
| SRPT | 42 | 1108005 | 6 |
| DVA | 38 | 3962351 | 1 |
| FTI | 34 | 862501 | -2 |
| Average | 40.25 | 1853534 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1854 million. That figure was $609 million in APA’s case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand TechnipFMC plc (NYSE:FTI) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks Apache Corporation (NYSE:APA) is even less popular than FTI. Hedge funds dodged a bullet by taking a bearish stance towards APA. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately APA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); APA investors were disappointed as the stock returned -78.5% 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 most of these stocks already outperformed the market so far 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.
