Were Hedge Funds Right About Chevron Corporation (CVX)?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Chevron Corporation (NYSE:CVX).

Is Chevron Corporation (NYSE:CVX) worth your attention right now? The smart money was becoming hopeful. The number of long hedge fund positions rose by 9 lately. Chevron Corporation (NYSE:CVX) was in 50 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that CVX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Donald Sussman of Paloma Partners

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. With all of this in mind we’re going to check out the latest hedge fund action regarding Chevron Corporation (NYSE:CVX).

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

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVX over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Berkshire Hathaway held the most valuable stake in Chevron Corporation (NYSE:CVX), which was worth $2422 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $631.6 million worth of shares. Diamond Hill Capital, Citadel Investment Group, and Millennium Management 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 Stamos Capital allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 4.23% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, earmarking 2.29 percent of its 13F equity portfolio to CVX.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Tudor Investment Corp, managed by Paul Tudor Jones, created the biggest position in Chevron Corporation (NYSE:CVX). Tudor Investment Corp had $16.7 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $6.7 million position during the quarter. The other funds with brand new CVX positions are Michael Gelband’s ExodusPoint Capital, Alec Litowitz and Ross Laser’s Magnetar Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Chevron Corporation (NYSE:CVX). These stocks are AbbVie Inc (NYSE:ABBV), Thermo Fisher Scientific Inc. (NYSE:TMO), Merck & Co., Inc. (NYSE:MRK), Broadcom Inc (NASDAQ:AVGO), Novo Nordisk A/S (NYSE:NVO), Danaher Corporation (NYSE:DHR), and Wells Fargo & Company (NYSE:WFC). This group of stocks’ market valuations are closest to CVX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 69.6 hedge funds with bullish positions and the average amount invested in these stocks was $5447 million. That figure was $4273 million in CVX’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 20 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 57.1. 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. A small number of hedge funds were also right about betting on CVX as the stock returned 11% since the end of the second quarter (through 11/5) and outperformed the market by an even larger margin.

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

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