We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Chesapeake Energy Corporation (NYSE:CHK) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Chesapeake Energy Corporation (NYSE:CHK) a buy here? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets advanced by 2 lately. Our calculations also showed that CHK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CHK was in 19 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with CHK holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joe Huber of Huber Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the fresh hedge fund action encompassing Chesapeake Energy Corporation (NYSE:CHK).
Hedge fund activity in Chesapeake Energy Corporation (NYSE:CHK)
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHK over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, LMR Partners was the largest shareholder of Chesapeake Energy Corporation (NYSE:CHK), with a stake worth $24.5 million reported as of the end of September. Trailing LMR Partners was AQR Capital Management, which amassed a stake valued at $7.6 million. Huber Capital Management, Citadel Investment Group, and Paloma Partners 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 LMR Partners allocated the biggest weight to Chesapeake Energy Corporation (NYSE:CHK), around 1.16% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, dishing out 0.48 percent of its 13F equity portfolio to CHK.
As aggregate interest increased, specific money managers have jumped into Chesapeake Energy Corporation (NYSE:CHK) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the largest position in Chesapeake Energy Corporation (NYSE:CHK). LMR Partners had $24.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Robert Henry Lynch’s Aristeia Capital, Steve Cohen’s Point72 Asset Management, and David Harding’s Winton Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Chesapeake Energy Corporation (NYSE:CHK). We will take a look at PDC Energy Inc (NASDAQ:PDCE), HNI Corp (NYSE:HNI), CorVel Corporation (NASDAQ:CRVL), and G-III Apparel Group, Ltd. (NASDAQ:GIII). This group of stocks’ market values are closest to CHK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PDCE | 32 | 261539 | 6 |
| HNI | 20 | 73286 | 3 |
| CRVL | 14 | 154650 | 0 |
| GIII | 19 | 119971 | 6 |
| Average | 21.25 | 152362 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $42 million in CHK’s case. PDC Energy Inc (NASDAQ:PDCE) is the most popular stock in this table. On the other hand CorVel Corporation (NASDAQ:CRVL) is the least popular one with only 14 bullish hedge fund positions. Chesapeake Energy Corporation (NYSE:CHK) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CHK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CHK investors were disappointed as the stock returned -79.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
