Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) to find out whether it was one of their high conviction long-term ideas.
Is Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) a cheap investment today? The smart money is taking a bearish view. The number of long hedge fund bets were cut by 5 recently. Our calculations also showed that crzo isn’t among the 30 most popular stocks among hedge funds. CRZO was in 13 hedge funds’ portfolios at the end of December. There were 18 hedge funds in our database with CRZO positions 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Didric Cederholm of Lion Point Capital
We’re going to take a glance at the key hedge fund action regarding Carrizo Oil & Gas, Inc. (NASDAQ:CRZO).
What does the smart money think about Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)?
At Q4’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in CRZO 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.
Among these funds, Lion Point held the most valuable stake in Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), which was worth $22.6 million at the end of the fourth quarter. On the second spot was Deep Basin Capital which amassed $12.5 million worth of shares. Moreover, Millennium Management, Renaissance Technologies, and GLG Partners were also bullish on Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds who sold off their entire stakes heading into Q3. At the top of the heap, Stuart J. Zimmer’s Zimmer Partners sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $76.9 million in stock, and Vince Maddi and Shawn Brennan’s SIR Capital Management was right behind this move, as the fund cut about $18.9 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) but similarly valued. These stocks are ProPetro Holding Corp. (NYSE:PUMP), Luminex Corporation (NASDAQ:LMNX), Celestica Inc. (NYSE:CLS), and Electro Scientific Industries, Inc. (NASDAQ:ESIO). This group of stocks’ market caps are closest to CRZO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PUMP | 20 | 160260 | -1 |
| LMNX | 19 | 175259 | 3 |
| CLS | 14 | 100130 | -3 |
| ESIO | 17 | 197164 | 4 |
| Average | 17.5 | 158203 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $65 million in CRZO’s case. ProPetro Holding Corp. (NYSE:PUMP) is the most popular stock in this table. On the other hand Celestica Inc. (NYSE:CLS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is even less popular than CLS. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on CRZO, though not to the same extent, as the stock returned 22.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
