Was The Smart Money Right About Chevron (CVX)?

In this article we will check out the progression of hedge fund sentiment towards Chevron Corporation (NYSE:CVX) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Chevron Corporation (NYSE:CVX) was in 50 hedge funds’ portfolios at the end of December. The all time high for this statistic is 56. CVX shareholders have witnessed an increase in hedge fund sentiment lately. There were 43 hedge funds in our database with CVX holdings at the end of September. Our calculations also showed that CVX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

William Harnisch of Peconic Partners LLC

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 analyze the fresh hedge fund action encompassing Chevron Corporation (NYSE:CVX).

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

At fourth quarter’s end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the third quarter of 2020. By comparison, 47 hedge funds held shares or bullish call options in CVX a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the most valuable position in Chevron Corporation (NYSE:CVX), worth close to $4.0957 billion, corresponding to 1.5% of its total 13F portfolio. On Berkshire Hathaway’s heels is Fisher Asset Management, managed by Ken Fisher, which holds a $476.6 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism contain Ric Dillon’s Diamond Hill Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Stamos Capital allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 3.37% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, earmarking 1.6 percent of its 13F equity portfolio to CVX.

As aggregate interest increased, key money managers have been driving this bullishness. Berkshire Hathaway, managed by Warren Buffett, created the largest position in Chevron Corporation (NYSE:CVX). Berkshire Hathaway had $4.0957 billion invested in the company at the end of the quarter. Till Bechtolsheimer’s Arosa Capital Management also initiated a $10.6 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Matthew Tewksbury’s Stevens Capital Management, and William Harnisch’s Peconic Partners LLC.

Let’s now take a look at hedge fund activity in other stocks similar to Chevron Corporation (NYSE:CVX). We will take a look at Eli Lilly and Company (NYSE:LLY), McDonald’s Corporation (NYSE:MCD), Unilever PLC (NYSE:UL), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), and NextEra Energy, Inc. (NYSE:NEE). This group of stocks’ market caps resemble CVX’s market cap.

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As you can see these stocks had an average of 50.3 hedge funds with bullish positions and the average amount invested in these stocks was $2822 million. That figure was $5390 million in CVX’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 14 bullish hedge fund positions. Chevron Corporation (NYSE:CVX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CVX is 63.7. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on CVX as the stock returned 23.8% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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