Should You Add InterOil Corporation (USA) (IOC) to Your Portfolio?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards InterOil Corporation (USA) (NYSE:IOC) .

InterOil Corporation (USA) (NYSE:IOC) was included in the 13F portfolios of 20 hedge funds from our database at the end of September. IOC investors should be aware of a decrease in hedge fund sentiment, as there had been 22 funds in our database with IOC holdings at the end of the previous quarter. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Eastgroup Properties Inc (NYSE:EGP), Radian Group Inc (NYSE:RDN), and Coherent, Inc. (NASDAQ:COHR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s view the recent action surrounding InterOil Corporation (USA) (NYSE:IOC).

How are hedge funds trading InterOil Corporation (USA) (NYSE:IOC)?

During the third quarter, the number of investors tracked by Insider Monkey long InterOil Corporation declined by 9% to 20. On the other hand, there were a total of 13 hedge funds with a bullish position in IOC at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Robert Emil Zoellner’s Alpine Associates holds the largest position in InterOil Corporation (USA) (NYSE:IOC). Alpine Associates has a $60.2 million position in the stock, comprising 2.2% of its 13F portfolio. The second most bullish fund manager is Pentwater Capital Management, led by Matthew Halbower, holding a $50.9 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish encompass Andy Redleaf’s Whitebox Advisors, Carl Tiedemann and Michael Tiedemann’s TIG Advisors and Gary Claar’s Claar Advisors. We should note that Whitebox Advisors is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that sold off their entire stakes in the stock during the third quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $47.7 million in stock, and Scott Scher & Michael Prober’s Clovis Capital Management was right behind this move, as the fund cut about $13.8 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to InterOil Corporation (USA) (NYSE:IOC). These stocks are Eastgroup Properties Inc (NYSE:EGP), Radian Group Inc (NYSE:RDN), Coherent, Inc. (NASDAQ:COHR), and AMAYA INC (NASDAQ:AYA). This group of stocks’ market caps match IOC’s market cap.

As you can see these stocks had an average of 19 funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $274 million in IOC’s case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only eight investors holding shares. InterOil Corporation (USA) (NYSE:IOC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RDN might be a better candidate to consider taking a long position in.