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 Canadian Natural Resources Limited (NYSE:CNQ).
Is CNQ a good stock to buy? The best stock pickers were in an optimistic mood. The number of bullish hedge fund positions advanced by 2 lately. Canadian Natural Resources Limited (NYSE:CNQ) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic is 34. Our calculations also showed that CNQ 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). There were 28 hedge funds in our database with CNQ positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jonathan Barrett of Luminus Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we’re going to review the key hedge fund action regarding Canadian Natural Resources Limited (NYSE:CNQ).
Do Hedge Funds Think CNQ Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in CNQ a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the number one position in Canadian Natural Resources Limited (NYSE:CNQ), worth close to $33.3 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Brandon Haley of Holocene Advisors, with a $24.4 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism consist of Steve Cohen’s Point72 Asset Management, Jonathan Barrett and Paul Segal’s Luminus Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Canadian Natural Resources Limited (NYSE:CNQ), around 5.9% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, earmarking 4.87 percent of its 13F equity portfolio to CNQ.
As one would reasonably expect, specific money managers have been driving this bullishness. Arosa Capital Management, managed by Till Bechtolsheimer, established the biggest position in Canadian Natural Resources Limited (NYSE:CNQ). Arosa Capital Management had $7.8 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors also made a $5.7 million investment in the stock during the quarter. The following funds were also among the new CNQ investors: Bruce Berkowitz’s Fairholme (FAIRX) and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Canadian Natural Resources Limited (NYSE:CNQ). These stocks are Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Coupa Software Incorporated (NASDAQ:COUP), First Republic Bank (NYSE:FRC), Zscaler, Inc. (NASDAQ:ZS), Suncor Energy Inc. (NYSE:SU), PG&E Corporation (NYSE:PCG), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market values are closest to CNQ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TTWO | 52 | 1289470 | -9 |
| COUP | 50 | 3191469 | 0 |
| FRC | 31 | 1221714 | -6 |
| ZS | 26 | 489528 | -9 |
| SU | 22 | 559413 | -7 |
| PCG | 76 | 6685918 | -16 |
| AMP | 29 | 618831 | 1 |
| Average | 40.9 | 2008049 | -6.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $2008 million. That figure was $233 million in CNQ’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Suncor Energy Inc. (NYSE:SU) is the least popular one with only 22 bullish hedge fund positions. Canadian Natural Resources Limited (NYSE:CNQ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNQ is 40.9. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on CNQ as the stock returned 52.8% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.
Follow Canadian Natural Resources Ltd (NYSE:CNQ)
Follow Canadian Natural Resources Ltd (NYSE:CNQ)
Disclosure: None. This article was originally published at Insider Monkey.
