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 Cimarex Energy Co (NYSE:XEC).
Is Cimarex Energy Co (NYSE:XEC) undervalued? Investors who are in the know were becoming more confident. The number of long hedge fund positions moved up by 4 in recent months. Cimarex Energy Co (NYSE:XEC) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 43. Our calculations also showed that XEC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most investors, hedge funds are seen as underperforming, old financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers hone in on the leaders of this club, approximately 850 funds. These money managers oversee the majority of all hedge funds’ total asset base, and by watching their first-class equity investments, Insider Monkey has brought to light a number of investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a gander at the latest hedge fund action encompassing Cimarex Energy Co (NYSE:XEC).
What does smart money think about Cimarex Energy Co (NYSE:XEC)?
At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XEC over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cimarex Energy Co (NYSE:XEC) was held by Citadel Investment Group, which reported holding $79.6 million worth of stock at the end of June. It was followed by Diamond Hill Capital with a $59.8 million position. Other investors bullish on the company included Encompass Capital Advisors, Millennium Management, and Deep Basin Capital. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Cimarex Energy Co (NYSE:XEC), around 7.16% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, dishing out 7.02 percent of its 13F equity portfolio to XEC.
As industrywide interest jumped, key money managers have jumped into Cimarex Energy Co (NYSE:XEC) headfirst. ExodusPoint Capital, managed by Michael Gelband, assembled the most valuable position in Cimarex Energy Co (NYSE:XEC). ExodusPoint Capital had $5.7 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $2.8 million investment in the stock during the quarter. The other funds with new positions in the stock are David Andre and Astro Teller’s Cerebellum Capital, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Qing Li’s Sciencast Management.
Let’s also examine hedge fund activity in other stocks similar to Cimarex Energy Co (NYSE:XEC). These stocks are Navistar International Corp (NYSE:NAV), STAAR Surgical Company (NASDAQ:STAA), Goosehead Insurance, Inc. (NASDAQ:GSHD), FirstCash, Inc. (NASDAQ:FCFS), Varonis Systems Inc (NASDAQ:VRNS), Insmed Incorporated (NASDAQ:INSM), and MGIC Investment Corporation (NYSE:MTG). This group of stocks’ market valuations resemble XEC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NAV | 33 | 1245849 | -3 |
| STAA | 20 | 920886 | -1 |
| GSHD | 15 | 114944 | 4 |
| FCFS | 22 | 144073 | 6 |
| VRNS | 28 | 604539 | 8 |
| INSM | 30 | 613700 | 10 |
| MTG | 40 | 262992 | -1 |
| Average | 26.9 | 558140 | 3.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $558 million. That figure was $557 million in XEC’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 15 bullish hedge fund positions. Cimarex Energy Co (NYSE:XEC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XEC is 84.2. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately XEC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on XEC were disappointed as the stock returned -7% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Cimarex Energy Co (NYSE:XEC)
Follow Cimarex Energy Co (NYSE:XEC)
Disclosure: None. This article was originally published at Insider Monkey.
