Was The Smart Money Right About Cheniere Energy, Inc. (LNG)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Cheniere Energy, Inc. (NYSE:LNG)? The smart money sentiment can provide an answer to this question.

Cheniere Energy, Inc. (NYSE:LNG) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. Cheniere Energy, Inc. (NYSE:LNG) was in 49 hedge funds’ portfolios at the end of June. The all time high for this statistic is 62. There were 40 hedge funds in our database with LNG positions at the end of the first quarter. Our calculations also showed that LNG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most market participants, hedge funds are seen as slow, old investment vehicles of yesteryear. While there are over 8000 funds in operation today, Our experts hone in on the moguls of this group, about 850 funds. These money managers oversee most of the hedge fund industry’s total asset base, and by observing their first-class picks, Insider Monkey has brought to light many investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Michael Lowenstein of Kensico Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks 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. Now let’s take a look at the latest hedge fund action encompassing Cheniere Energy, Inc. (NYSE:LNG).

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

Heading into the third quarter of 2021, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from one quarter earlier. By comparison, 38 hedge funds held shares or bullish call options in LNG a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Icahn Capital LP held the most valuable stake in Cheniere Energy, Inc. (NYSE:LNG), which was worth $1402.5 million at the end of the second quarter. On the second spot was Steadfast Capital Management which amassed $278.3 million worth of shares. MFN Partners, Kensico Capital, and Citadel Investment Group 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 MFN Partners allocated the biggest weight to Cheniere Energy, Inc. (NYSE:LNG), around 13.29% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, earmarking 12.17 percent of its 13F equity portfolio to LNG.

As industrywide interest jumped, key hedge funds have jumped into Cheniere Energy, Inc. (NYSE:LNG) headfirst. Antara Capital, managed by Himanshu Gulati, created the most outsized call position in Cheniere Energy, Inc. (NYSE:LNG). Antara Capital had $17.3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $13 million investment in the stock during the quarter. The other funds with new positions in the stock are Carson Yost’s Yost Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cheniere Energy, Inc. (NYSE:LNG) but similarly valued. We will take a look at Martin Marietta Materials, Inc. (NYSE:MLM), Edison International (NYSE:EIX), Extra Space Storage, Inc. (NYSE:EXR), Kellogg Company (NYSE:K), Paycom Software Inc (NYSE:PAYC), Western Digital Corporation (NASDAQ:WDC), and Royal Caribbean Cruises Ltd. (NYSE:RCL). This group of stocks’ market values match LNG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $1132 million. That figure was $2944 million in LNG’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Edison International (NYSE:EIX) is the least popular one with only 18 bullish hedge fund positions. Cheniere Energy, Inc. (NYSE:LNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LNG is 73.5. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on LNG as the stock returned 24.7% since the end of Q2 (through 11/5) 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.