Were Hedge Funds Right About CVR Energy, Inc. (CVI)?

In this article you are going to find out whether hedge funds think CVR Energy, Inc. (NYSE:CVI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

CVR Energy, Inc. (NYSE:CVI) investors should be aware of a decrease in enthusiasm from smart money recently. CVR Energy, Inc. (NYSE:CVI) was in 16 hedge funds’ portfolios at the end of June. The all time high for this statistic is 31. There were 18 hedge funds in our database with CVI holdings at the end of March. Our calculations also showed that CVI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

David Siegel of Two Sigma Advisors

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 are checking out stock pitches like this emerging lithium 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 analyze the fresh hedge fund action encompassing CVR Energy, Inc. (NYSE:CVI).

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

Heading into the third quarter of 2021, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVI over the last 24 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in CVR Energy, Inc. (NYSE:CVI) was held by Icahn Capital LP, which reported holding $1278.7 million worth of stock at the end of June. It was followed by Millennium Management with a $17 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Weiss Asset Management. In terms of the portfolio weights assigned to each position Icahn Capital LP allocated the biggest weight to CVR Energy, Inc. (NYSE:CVI), around 5.26% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 0.73 percent of its 13F equity portfolio to CVI.

Due to the fact that CVR Energy, Inc. (NYSE:CVI) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers that decided to sell off their entire stakes in the second quarter. Intriguingly, Brandon Haley’s Holocene Advisors cut the biggest position of the 750 funds followed by Insider Monkey, totaling an estimated $2.5 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $0.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CVR Energy, Inc. (NYSE:CVI) but similarly valued. We will take a look at WideOpenWest, Inc. (NYSE:WOW), Yext, Inc. (NYSE:YEXT), Argo Group International Holdings, Ltd. (NYSE:ARGO), Core Laboratories N.V. (NYSE:CLB), Lindsay Corporation (NYSE:LNN), QAD Inc. (NASDAQ:QADA), and BioLife Solutions, Inc. (NASDAQ:BLFS). This group of stocks’ market valuations are closest to CVI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $249 million. That figure was $1348 million in CVI’s case. QAD Inc. (NASDAQ:QADA) is the most popular stock in this table. On the other hand BioLife Solutions, Inc. (NASDAQ:BLFS) is the least popular one with only 9 bullish hedge fund positions. CVR Energy, Inc. (NYSE:CVI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CVI is 43.5. 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. 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 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 surpassed the market again by 3.1 percentage points. Unfortunately CVI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CVI investors were disappointed as the stock returned -1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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