Is Comstock Resources Inc (CRK) Going to Burn These Hedge Funds?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Comstock Resources Inc (NYSE:CRK) changed recently.

Is Comstock Resources Inc (NYSE:CRK) undervalued? The smart money was buying. The number of bullish hedge fund bets went up by 6 lately. Comstock Resources Inc (NYSE:CRK) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistic is 24. Our calculations also showed that CRK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 14 hedge funds in our database with CRK holdings at the end of March.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy 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. 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 homepage. With all of this in mind we’re going to analyze the key hedge fund action encompassing Comstock Resources Inc (NYSE:CRK).

Do Hedge Funds Think CRK Is A Good Stock To Buy Now?

At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CRK over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Comstock Resources Inc (NYSE:CRK) was held by Encompass Capital Advisors, which reported holding $25.3 million worth of stock at the end of June. It was followed by Slate Path Capital with a $23.9 million position. Other investors bullish on the company included Adage Capital Management, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Comstock Resources Inc (NYSE:CRK), around 1.77% of its 13F portfolio. Slate Path Capital is also relatively very bullish on the stock, designating 1.34 percent of its 13F equity portfolio to CRK.

As aggregate interest increased, some big names have jumped into Comstock Resources Inc (NYSE:CRK) headfirst. Slate Path Capital, managed by David Greenspan, established the most outsized position in Comstock Resources Inc (NYSE:CRK). Slate Path Capital had $23.9 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also initiated a $5.3 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Bruce Kovner’s Caxton Associates LP, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to Comstock Resources Inc (NYSE:CRK). These stocks are Eargo, Inc. (NASDAQ:EAR), Pitney Bowes Inc. (NYSE:PBI), PMV Pharmaceuticals, Inc. (NASDAQ:PMVP), Materion Corp (NYSE:MTRN), Marcus & Millichap Inc (NYSE:MMI), NeoGames S.A. (NASDAQ:NGMS), and Sandstorm Gold Ltd. (NYSE:SAND). This group of stocks’ market valuations are similar to CRK’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $146 million in CRK’s case. Pitney Bowes Inc. (NYSE:PBI) is the most popular stock in this table. On the other hand Marcus & Millichap Inc (NYSE:MMI) is the least popular one with only 11 bullish hedge fund positions. Comstock Resources Inc (NYSE:CRK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CRK is 72.5. 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 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CRK as the stock returned 46.3% since the end of Q2 (through 10/22) 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.