Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)? The smart money sentiment can provide an answer to this question.
Is Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) a good stock to buy now? Prominent investors are taking a bullish view. The number of long hedge fund positions increased by 6 lately. Our calculations also showed that CRZO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CRZO was in 16 hedge funds’ portfolios at the end of the third quarter of 2019. There were 10 hedge funds in our database with CRZO positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Didric Cederholm of Lion Point Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the fresh hedge fund action regarding Carrizo Oil & Gas, Inc. (NASDAQ:CRZO).
How have hedgies been trading Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CRZO over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Magnetar Capital was the largest shareholder of Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), with a stake worth $42 million reported as of the end of September. Trailing Magnetar Capital was Lion Point, which amassed a stake valued at $40.1 million. Alpine Associates, Carlson Capital, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lion Point allocated the biggest weight to Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), around 4.47% of its 13F portfolio. Havens Advisors is also relatively very bullish on the stock, earmarking 1.72 percent of its 13F equity portfolio to CRZO.
Consequently, specific money managers have jumped into Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) headfirst. Magnetar Capital, managed by Alec Litowitz and Ross Laser, initiated the most outsized position in Carrizo Oil & Gas, Inc. (NASDAQ:CRZO). Magnetar Capital had $42 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $27.4 million position during the quarter. The other funds with brand new CRZO positions are Clint Carlson’s Carlson Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors.
Let’s check out hedge fund activity in other stocks similar to Carrizo Oil & Gas, Inc. (NASDAQ:CRZO). We will take a look at Tivity Health, Inc. (NASDAQ:TVTY), Origin Bancorp, Inc. (NASDAQ:OBNK), Carolina Financial Corporation (NASDAQ:CARO), and Northfield Bancorp Inc (NASDAQ:NFBK). This group of stocks’ market valuations match CRZO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TVTY | 19 | 233416 | 3 |
| OBNK | 6 | 30331 | 2 |
| CARO | 8 | 48350 | 0 |
| NFBK | 8 | 40560 | 6 |
| Average | 10.25 | 88164 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $143 million in CRZO’s case. Tivity Health, Inc. (NASDAQ:TVTY) is the most popular stock in this table. On the other hand Origin Bancorp, Inc. (NASDAQ:OBNK) is the least popular one with only 6 bullish hedge fund positions. Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CRZO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CRZO were disappointed as the stock returned -25.4% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
