How do you pick the next stock to invest in? One way would be to spend hours 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 Marathon Oil Corporation (NYSE:MRO).
Hedge fund interest in Marathon Oil Corporation (NYSE:MRO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MRO to other stocks including Rollins, Inc. (NYSE:ROL), Dover Corporation (NYSE:DOV), and Gartner Inc (NYSE:IT) to get a better sense of its popularity.
To most market participants, hedge funds are perceived as underperforming, outdated investment tools of years past. While there are greater than 8000 funds trading today, We hone in on the moguls of this club, about 750 funds. It is estimated that this group of investors have their hands on bulk of the hedge fund industry’s total capital, and by tracking their finest equity investments, Insider Monkey has unearthed various investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Cliff Asness of AQR Capital Management
We’re going to analyze the new hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).
What does the smart money think about Marathon Oil Corporation (NYSE:MRO)?
Heading into the second quarter of 2019, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. By comparison, 33 hedge funds held shares or bullish call options in MRO a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Marathon Oil Corporation (NYSE:MRO), which was worth $114.4 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $80.9 million worth of shares. Moreover, Encompass Capital Advisors, Two Sigma Advisors, and AQR Capital Management were also bullish on Marathon Oil Corporation (NYSE:MRO), allocating a large percentage of their portfolios to this stock.
Because Marathon Oil Corporation (NYSE:MRO) has experienced declining sentiment from the smart money, it’s easy to see that there was a specific group of hedge funds that slashed their full holdings by the end of the third quarter. At the top of the heap, Vince Maddi and Shawn Brennan’s SIR Capital Management sold off the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $21.7 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $16.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Marathon Oil Corporation (NYSE:MRO). We will take a look at Rollins, Inc. (NYSE:ROL), Dover Corporation (NYSE:DOV), Gartner Inc (NYSE:IT), and Wayfair Inc (NYSE:W). This group of stocks’ market valuations are similar to MRO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROL | 20 | 286732 | -2 |
| DOV | 30 | 474968 | 1 |
| IT | 15 | 1205964 | -6 |
| W | 30 | 2455188 | 2 |
| Average | 23.75 | 1105713 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $1106 million. That figure was $733 million in MRO’s case. Dover Corporation (NYSE:DOV) is the most popular stock in this table. On the other hand Gartner Inc (NYSE:IT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Marathon Oil Corporation (NYSE:MRO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately MRO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MRO were disappointed as the stock returned -18.2% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
