Is Concho Resources Inc. (NYSE:CXO) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Concho Resources Inc. (NYSE:CXO) has experienced an increase in support from the world’s most elite money managers recently. CXO was in 27 hedge funds’ portfolios at the end of June. There were 26 hedge funds in our database with CXO holdings at the end of the previous quarter. This is just a marginal improvement though. Our calculations also showed that CXO isn’t among the 30 most popular stocks among hedge funds.
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the key hedge fund action regarding Concho Resources Inc. (NYSE:CXO).
How are hedge funds trading Concho Resources Inc. (NYSE:CXO)?
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in CXO a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Concho Resources Inc. (NYSE:CXO), which was worth $249.3 million at the end of the second quarter. On the second spot was Encompass Capital Advisors which amassed $49.9 million worth of shares. Moreover, Deep Basin Capital, Perella Weinberg Partners, and Alyeska Investment Group were also bullish on Concho Resources Inc. (NYSE:CXO), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Encompass Capital Advisors, managed by Todd J. Kantor, initiated the biggest position in Concho Resources Inc. (NYSE:CXO). Encompass Capital Advisors had $49.9 million invested in the company at the end of the quarter. Matt Smith’s Deep Basin Capital also made a $49.1 million investment in the stock during the quarter. The other funds with brand new CXO positions are Perella Weinberg Partners, Vince Maddi and Shawn Brennan’s SIR Capital Management, and Kelly Hampaul’s Everett Capital Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Concho Resources Inc. (NYSE:CXO) but similarly valued. We will take a look at Halliburton Company (NYSE:HAL), Weyerhaeuser Company (NYSE:WY), Palo Alto Networks Inc (NYSE:PANW), and The Clorox Company (NYSE:CLX). This group of stocks’ market valuations are closest to CXO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HAL | 33 | 935104 | -5 |
| WY | 28 | 415491 | 3 |
| PANW | 45 | 2343774 | 1 |
| CLX | 28 | 1011768 | -1 |
| Average | 33.5 | 1176534 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1177 million. That figure was $552 million in CXO’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Weyerhaeuser Company (NYSE:WY) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Concho Resources Inc. (NYSE:CXO) is even less popular than WY. Hedge funds dodged a bullet by taking a bearish stance towards CXO. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CXO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CXO investors were disappointed as the stock returned -34.1% during 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 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
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.
