In this article we will analyze whether Centennial Resource Development, Inc. (NASDAQ:CDEV) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is CDEV a good stock to buy now? Investors who are in the know were getting less optimistic. The number of bullish hedge fund positions dropped by 6 recently. Centennial Resource Development, Inc. (NASDAQ:CDEV) was in 14 hedge funds’ portfolios at the end of September. The all time high for this statistic is 29. Our calculations also showed that CDEV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Lowenstein of Kensico Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a peek at the recent hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).
Do Hedge Funds Think CDEV Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in CDEV over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Prescott Group Capital Management was the largest shareholder of Centennial Resource Development, Inc. (NASDAQ:CDEV), with a stake worth $6 million reported as of the end of September. Trailing Prescott Group Capital Management was Renaissance Technologies, which amassed a stake valued at $3.9 million. Arrowstreet Capital, Kensico Capital, and AQR Capital Management 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 Prescott Group Capital Management allocated the biggest weight to Centennial Resource Development, Inc. (NASDAQ:CDEV), around 2.67% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to CDEV.
Because Centennial Resource Development, Inc. (NASDAQ:CDEV) has witnessed a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds that elected to cut their positions entirely in the third quarter. Interestingly, MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners dropped the biggest position of all the hedgies tracked by Insider Monkey, comprising about $4.5 million in stock. Ed Bosek’s fund, BeaconLight Capital, also dumped its stock, about $0.4 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Centennial Resource Development, Inc. (NASDAQ:CDEV). We will take a look at KVH Industries, Inc. (NASDAQ:KVHI), Tiptree Inc. (NASDAQ:TIPT), Oil States International, Inc. (NYSE:OIS), Sol-Gel Technologies Ltd. (NASDAQ:SLGL), Universal Technical Institute, Inc. (NYSE:UTI), Eton Pharmaceuticals, Inc. (NASDAQ:ETON), and Grupo Supervielle S.A. (NYSE:SUPV). This group of stocks’ market values are similar to CDEV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KVHI | 4 | 4825 | 0 |
| TIPT | 3 | 842 | 1 |
| OIS | 12 | 10351 | -1 |
| SLGL | 2 | 6172 | -1 |
| UTI | 14 | 39515 | 2 |
| ETON | 4 | 29256 | 1 |
| SUPV | 3 | 414 | -1 |
| Average | 6 | 13054 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $21 million in CDEV’s case. Universal Technical Institute, Inc. (NYSE:UTI) is the most popular stock in this table. On the other hand Sol-Gel Technologies Ltd. (NASDAQ:SLGL) is the least popular one with only 2 bullish hedge fund positions. Centennial Resource Development, Inc. (NASDAQ:CDEV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDEV is 63.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on CDEV as the stock returned 162.5% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
