How do you pick the next stock to invest in? One way would be to spend days 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 ConocoPhillips (NYSE:COP) and determine whether hedge funds had an edge regarding this stock.
ConocoPhillips (NYSE:COP) was in 49 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 70. COP shareholders have witnessed a decrease in hedge fund interest lately. There were 50 hedge funds in our database with COP positions at the end of the second quarter. Our calculations also showed that COP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to go over the recent hedge fund action encompassing ConocoPhillips (NYSE:COP).
Bruce Kovner of Caxton Associates LP
Do Hedge Funds Think COP Is A Good Stock To Buy Now?
At Q3’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in COP a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in ConocoPhillips (NYSE:COP) was held by Fisher Asset Management, which reported holding $403.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $387.6 million position. Other investors bullish on the company included Citadel Investment Group, Laurion Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to ConocoPhillips (NYSE:COP), around 6.86% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, setting aside 3.87 percent of its 13F equity portfolio to COP.
Because ConocoPhillips (NYSE:COP) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds that elected to cut their positions entirely heading into Q4. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the biggest stake of all the hedgies tracked by Insider Monkey, worth about $27 million in stock, and Robert Bishop’s Impala Asset Management was right behind this move, as the fund dumped about $11.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ConocoPhillips (NYSE:COP) but similarly valued. These stocks are Analog Devices, Inc. (NASDAQ:ADI), U.S. Bancorp (NYSE:USB), Gilead Sciences, Inc. (NASDAQ:GILD), PetroChina Company Limited (NYSE:PTR), Automatic Data Processing, Inc. (NASDAQ:ADP), Uber Technologies, Inc. (NYSE:UBER), and Altria Group Inc (NYSE:MO). This group of stocks’ market valuations are similar to COP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADI | 74 | 5698767 | 12 |
| USB | 42 | 8390873 | 1 |
| GILD | 55 | 1751615 | 1 |
| PTR | 7 | 94903 | -1 |
| ADP | 43 | 3616230 | 2 |
| UBER | 143 | 10766637 | 8 |
| MO | 45 | 829789 | -2 |
| Average | 58.4 | 4449831 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 58.4 hedge funds with bullish positions and the average amount invested in these stocks was $4450 million. That figure was $1371 million in COP’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 7 bullish hedge fund positions. ConocoPhillips (NYSE:COP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COP is 40.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on COP as the stock returned 31.9% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
