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 (read our latest 10 coronavirus predictions).
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 take a look at whether Hess Corporation (NYSE:HES) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hess Corporation (NYSE:HES) has seen a decrease in enthusiasm from smart money recently. HES was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 38 hedge funds in our database with HES positions at the end of the previous quarter. Our calculations also showed that HES isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of the article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Clint Carlson of Carlson 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 take a peek at the fresh hedge fund action encompassing Hess Corporation (NYSE:HES).
How are hedge funds trading Hess Corporation (NYSE:HES)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the third quarter of 2019. On the other hand, there were a total of 36 hedge funds with a bullish position in HES a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Hess Corporation (NYSE:HES), with a stake worth $163.9 million reported as of the end of September. Trailing Fisher Asset Management was Impala Asset Management, which amassed a stake valued at $98.9 million. Empyrean Capital Partners, Citadel Investment Group, and Anchor Bolt Capital 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 Anchor Bolt Capital allocated the biggest weight to Hess Corporation (NYSE:HES), around 9.33% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, dishing out 7.51 percent of its 13F equity portfolio to HES.
Because Hess Corporation (NYSE:HES) has witnessed falling interest from the smart money, it’s safe to say that there lies a certain “tier” of funds who sold off their full holdings last quarter. At the top of the heap, Paul Singer’s Elliott Management dropped the biggest position of the 750 funds monitored by Insider Monkey, comprising an estimated $405.2 million in stock. Brandon Haley’s fund, Holocene Advisors, also dumped its stock, about $26 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Hess Corporation (NYSE:HES). We will take a look at Pembina Pipeline Corp (NYSE:PBA), CGI Inc. (NYSE:GIB), DexCom, Inc. (NASDAQ:DXCM), and KeyCorp (NYSE:KEY). This group of stocks’ market values match HES’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PBA | 17 | 48892 | 5 |
| GIB | 19 | 351250 | 3 |
| DXCM | 40 | 1052915 | 4 |
| KEY | 36 | 778453 | 6 |
| Average | 28 | 557878 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $558 million. That figure was $537 million in HES’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 17 bullish hedge fund positions. Hess Corporation (NYSE:HES) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately HES wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HES were disappointed as the stock returned -53.2% 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.
