While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Cabot Oil & Gas Corporation (NYSE:COG) and see how the stock performed in comparison to hedge funds’ consensus picks.
Cabot Oil & Gas Corporation (NYSE:COG) has experienced an increase in hedge fund sentiment lately. Our calculations also showed that COG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Cabot Oil & Gas Corporation (NYSE:COG).
How are hedge funds trading Cabot Oil & Gas Corporation (NYSE:COG)?
Heading into the fourth quarter of 2019, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the second quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in COG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cabot Oil & Gas Corporation (NYSE:COG) was held by D E Shaw, which reported holding $109.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $104.4 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and Luminus Management. In terms of the portfolio weights assigned to each position Southport Management allocated the biggest weight to Cabot Oil & Gas Corporation (NYSE:COG), around 2.97% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, setting aside 2.8 percent of its 13F equity portfolio to COG.
Consequently, some big names were leading the bulls’ herd. Soros Fund Management, managed by George Soros, established the most outsized position in Cabot Oil & Gas Corporation (NYSE:COG). Soros Fund Management had $17.6 million invested in the company at the end of the quarter. Todd J. Kantor’s Encompass Capital Advisors also made a $17.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace, Phill Gross and Robert Atchinson’s Adage Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Cabot Oil & Gas Corporation (NYSE:COG). These stocks are NovoCure Limited (NASDAQ:NVCR), 58.com Inc (NYSE:WUBA), Sociedad Quimica y Minera (NYSE:SQM), and Elbit Systems Ltd. (NASDAQ:ESLT). This group of stocks’ market values are closest to COG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVCR | 22 | 375699 | 0 |
| WUBA | 24 | 331607 | 2 |
| SQM | 8 | 19977 | 1 |
| ESLT | 3 | 15834 | -2 |
| Average | 14.25 | 185779 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $667 million in COG’s case. 58.com Inc (NYSE:WUBA) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Cabot Oil & Gas Corporation (NYSE:COG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately COG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on COG were disappointed as the stock returned -20% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market 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.
