Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Continental Resources, Inc. (NYSE:CLR) a buy here? Prominent investors are becoming less hopeful. The number of bullish hedge fund bets decreased by 5 recently. Our calculations also showed that CLR isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the key hedge fund action regarding Continental Resources, Inc. (NYSE:CLR).
What does the smart money think about Continental Resources, Inc. (NYSE:CLR)?
At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CLR over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, D. E. Shaw’s D E Shaw has the number one position in Continental Resources, Inc. (NYSE:CLR), worth close to $108.6 million, comprising 0.1% of its total 13F portfolio. On D E Shaw’s heels is Encompass Capital Advisors, managed by Todd J. Kantor, which holds a $79.4 million position; 5.9% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism comprise Israel Englander’s Millennium Management, Matt Smith’s Deep Basin Capital and John Overdeck and David Siegel’s Two Sigma Advisors.
Seeing as Continental Resources, Inc. (NYSE:CLR) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who were dropping their positions entirely heading into Q3. It’s worth mentioning that Peter Muller’s PDT Partners sold off the biggest investment of the 700 funds watched by Insider Monkey, comprising an estimated $12 million in stock. Daniel Arbess’s fund, Perella Weinberg Partners, also dropped its stock, about $8.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Continental Resources, Inc. (NYSE:CLR) but similarly valued. We will take a look at First Republic Bank (NYSE:FRC), AmerisourceBergen Corporation (NYSE:ABC), Deutsche Bank AG (NYSE:DB), and W.W. Grainger, Inc. (NYSE:GWW). All of these stocks’ market caps match CLR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRC | 18 | 683851 | 3 |
| ABC | 28 | 677582 | -6 |
| DB | 13 | 1074334 | -1 |
| GWW | 29 | 349124 | 6 |
| Average | 22 | 696223 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $696 million. That figure was $559 million in CLR’s case. W.W. Grainger, Inc. (NYSE:GWW) is the most popular stock in this table. On the other hand Deutsche Bank AG (NYSE:DB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Continental Resources, Inc. (NYSE:CLR) is more popular among hedge funds. 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 CLR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CLR were disappointed as the stock returned -19.4% 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
