How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Chesapeake Energy Corporation (NYSE:CHK) and determine whether hedge funds had an edge regarding this stock.
Chesapeake Energy Corporation (NYSE:CHK) was in 44 hedge funds’ portfolios at the end of September. The all time high for this statistic was previously 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CHK investors should be aware of an increase in hedge fund sentiment lately. There were 43 hedge funds in our database with CHK positions at the end of the second quarter. Our calculations also showed that CHK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
David E. Shaw of D.E. Shaw
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Chesapeake Energy Corporation (NYSE:CHK).
Do Hedge Funds Think CHK Is A Good Stock To Buy Now?
At the end of September, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards CHK over the last 25 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Chesapeake Energy Corporation (NYSE:CHK) was held by Oaktree Capital Management, which reported holding $735.3 million worth of stock at the end of September. It was followed by D E Shaw with a $343.1 million position. Other investors bullish on the company included Glendon Capital Management, Slate Path Capital, and Adage Capital Management. In terms of the portfolio weights assigned to each position Alta Fundamental Advisers allocated the biggest weight to Chesapeake Energy Corporation (NYSE:CHK), around 14.48% of its 13F portfolio. Glendon Capital Management is also relatively very bullish on the stock, dishing out 10.96 percent of its 13F equity portfolio to CHK.
As aggregate interest increased, specific money managers have been driving this bullishness. Oaktree Capital Management, managed by Howard Marks, assembled the largest call position in Chesapeake Energy Corporation (NYSE:CHK). Oaktree Capital Management had $76.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $28.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Andrew Weiss’s Weiss Asset Management, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks similar to Chesapeake Energy Corporation (NYSE:CHK). These stocks are Landstar System, Inc. (NASDAQ:LSTR), Ardagh Group S.A. (NYSE:ARD), Blueprint Medicines Corporation (NASDAQ:BPMC), Grupo Aeroportuario del Pacifico (NYSE:PAC), Ardagh Metal Packaging S.A. (NYSE:AMBP), MDU Resources Group Inc (NYSE:MDU), and MGM Growth Properties LLC (NYSE:MGP). This group of stocks’ market valuations are closest to CHK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LSTR | 25 | 256357 | 9 |
| ARD | 14 | 154999 | 1 |
| BPMC | 34 | 910776 | -2 |
| PAC | 3 | 88302 | -4 |
| AMBP | 27 | 400201 | 27 |
| MDU | 20 | 141838 | -1 |
| MGP | 27 | 536809 | -2 |
| Average | 21.4 | 355612 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $356 million. That figure was $2175 million in CHK’s case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Chesapeake Energy Corporation (NYSE:CHK) is more popular among hedge funds. Our overall hedge fund sentiment score for CHK is 86. 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 returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on CHK as the stock returned 11.5% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
