Reputable billionaire investors such as Nelson Peltz 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.
Murphy Oil Corporation (NYSE:MUR) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds’ portfolios at the end of September. At the end of this article we will also compare MUR to other stocks including First American Financial Corp (NYSE:FAF), Lazard Ltd (NYSE:LAZ), and Newfield Exploration Co. (NYSE:NFX) to get a better sense of its popularity.
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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a look at the key hedge fund action surrounding Murphy Oil Corporation (NYSE:MUR).
What does the smart money think about Murphy Oil Corporation (NYSE:MUR)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, no change from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MUR over the last 13 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Murphy Oil Corporation (NYSE:MUR), which was worth $206.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $36.4 million worth of shares. Moreover, Renaissance Technologies, Two Sigma Advisors, and Arrowstreet Capital were also bullish on Murphy Oil Corporation (NYSE:MUR), allocating a large percentage of their portfolios to this stock.
Seeing as Murphy Oil Corporation (NYSE:MUR) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of funds who were dropping their entire stakes in the third quarter. Intriguingly, Till Bechtolsheimer’s Arosa Capital Management sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $10.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $6.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Murphy Oil Corporation (NYSE:MUR). We will take a look at First American Financial Corp (NYSE:FAF), Lazard Ltd (NYSE:LAZ), Newfield Exploration Co. (NYSE:NFX), and Dr. Reddy’s Laboratories Limited (NYSE:RDY). This group of stocks’ market caps match MUR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FAF | 33 | 620242 | 7 |
| LAZ | 17 | 468779 | 0 |
| NFX | 39 | 375919 | 16 |
| RDY | 9 | 72351 | -2 |
| Average | 24.5 | 384323 | 5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $384 million. That figure was $364 million in MUR’s case. Newfield Exploration Co. (NYSE:NFX) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 9 bullish hedge fund positions. Murphy Oil Corporation (NYSE:MUR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NFX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
