Is XEC A Good Stock To Buy According To Hedge Funds?

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Cimarex Energy Co (NYSE:XEC).

Is XEC a good stock to buy? Cimarex Energy Co (NYSE:XEC) was in 38 hedge funds’ portfolios at the end of September. The all time high for this statistic is 43. XEC has seen a decrease in activity from the world’s largest hedge funds lately. There were 39 hedge funds in our database with XEC positions at the end of the second quarter. Our calculations also showed that XEC 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.

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. 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 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 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.

Clint Carlson of Carlson Capital

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 let’s take a glance at the key hedge fund action encompassing Cimarex Energy Co (NYSE:XEC).

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

At third quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards XEC over the last 21 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.

More specifically, Diamond Hill Capital was the largest shareholder of Cimarex Energy Co (NYSE:XEC), with a stake worth $75.1 million reported as of the end of September. Trailing Diamond Hill Capital was Citadel Investment Group, which amassed a stake valued at $61.1 million. Encompass Capital Advisors, Deep Basin Capital, and D E Shaw 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 SIR Capital Management allocated the biggest weight to Cimarex Energy Co (NYSE:XEC), around 7.29% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, setting aside 6.29 percent of its 13F equity portfolio to XEC.

Since Cimarex Energy Co (NYSE:XEC) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers that elected to cut their full holdings last quarter. Intriguingly, David Harding’s Winton Capital Management dropped the largest investment of all the hedgies monitored by Insider Monkey, worth about $1 million in stock, and Qing Li’s Sciencast Management was right behind this move, as the fund cut about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cimarex Energy Co (NYSE:XEC) but similarly valued. These stocks are Pluralsight, Inc. (NASDAQ:PS), Teradata Corporation (NYSE:TDC), Opko Health Inc. (NASDAQ:OPK), Sprouts Farmers Market Inc (NASDAQ:SFM), J&J Snack Foods Corp. (NASDAQ:JJSF), Spectrum Brands Holdings, Inc. (NYSE:SPB), and American Eagle Outfitters Inc. (NYSE:AEO). This group of stocks’ market valuations are similar to XEC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $564 million in XEC’s case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Opko Health Inc. (NASDAQ:OPK) is the least popular one with only 11 bullish hedge fund positions. Cimarex Energy Co (NYSE:XEC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XEC is 74.1. 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. Hedge funds were also right about betting on XEC as the stock returned 61.4% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.