Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of C&J Energy Services, Inc (NYSE:CJ).
Hedge fund interest in C&J Energy Services, Inc (NYSE:CJ) 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 CJ to other stocks including Multi-Color Corporation (NASDAQ:LABL), Revlon Inc (NYSE:REV), and Boingo Wireless Inc (NASDAQ:WIFI) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s analyze the key hedge fund action regarding C&J Energy Services, Inc (NYSE:CJ).
How have hedgies been trading C&J Energy Services, Inc (NYSE:CJ)?
Heading into the second quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CJ over the last 15 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in C&J Energy Services, Inc (NYSE:CJ) was held by Point72 Asset Management, which reported holding $42.5 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $38.7 million position. Other investors bullish on the company included Glendon Capital Management, Whitebox Advisors, and Millennium Management.
Due to the fact that C&J Energy Services, Inc (NYSE:CJ) has faced falling interest from the smart money, we can see that there were a few hedgies who sold off their positions entirely last quarter. Interestingly, Howard Marks’s Oaktree Capital Management sold off the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $17.9 million in stock. John M. Angelo and Michael L. Gordon’s fund, Angelo Gordon & Co, also dumped its stock, about $4.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to C&J Energy Services, Inc (NYSE:CJ). These stocks are Multi-Color Corporation (NASDAQ:LABL), Revlon Inc (NYSE:REV), Boingo Wireless Inc (NASDAQ:WIFI), and Apogee Enterprises, Inc. (NASDAQ:APOG). All of these stocks’ market caps are similar to CJ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LABL | 12 | 67813 | 2 |
| REV | 28 | 267692 | 2 |
| WIFI | 17 | 136649 | -1 |
| APOG | 11 | 144883 | -5 |
| Average | 17 | 154259 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $235 million in CJ’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Apogee Enterprises, Inc. (NASDAQ:APOG) is the least popular one with only 11 bullish hedge fund positions. C&J Energy Services, Inc (NYSE:CJ) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CJ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CJ were disappointed as the stock returned -19.6% 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
