Were Hedge Funds Wrong About Embracing Devon Energy Corporation (DVN)?

In this article we will take a look at whether hedge funds think Devon Energy Corporation (NYSE:DVN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Devon Energy Corporation (NYSE:DVN) has seen an increase in hedge fund interest recently. Devon Energy Corporation (NYSE:DVN) was in 45 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 61. Our calculations also showed that DVN 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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. With all of this in mind we’re going to analyze the new hedge fund action encompassing Devon Energy Corporation (NYSE:DVN).

Hedge fund activity in Devon Energy Corporation (NYSE:DVN)

At the end of June, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the first quarter of 2020. By comparison, 36 hedge funds held shares or bullish call options in DVN a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Devon Energy Corporation (NYSE:DVN). Arrowstreet Capital has a $62.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $49.4 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions include Israel Englander’s Millennium Management, Renaissance Technologies and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Devon Energy Corporation (NYSE:DVN), around 5.67% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, setting aside 1.82 percent of its 13F equity portfolio to DVN.

Consequently, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the largest position in Devon Energy Corporation (NYSE:DVN). Point72 Asset Management had $10.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $2.6 million position during the quarter. The other funds with brand new DVN positions are Greg Poole’s Echo Street Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Andy Redleaf’s Whitebox Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Devon Energy Corporation (NYSE:DVN). These stocks are MAXIMUS, Inc. (NYSE:MMS), Nomad Foods Limited (NYSE:NOMD), Landstar System, Inc. (NASDAQ:LSTR), II-VI, Inc. (NASDAQ:IIVI), CAE, Inc. (NYSE:CAE), Noble Energy, Inc. (NASDAQ:NBL), and Switch, Inc. (NYSE:SWCH). This group of stocks’ market caps match DVN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $404 million in DVN’s case. Noble Energy, Inc. (NASDAQ:NBL) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Devon Energy Corporation (NYSE:DVN) is more popular among hedge funds. Our overall hedge fund sentiment score for DVN is 80.1. 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 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately DVN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DVN were disappointed as the stock returned -14.6% since the end of the second quarter (through 10/23) 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 most of these stocks already outperformed the market in 2020.

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