Were These Hedge Funds Wrong About Helmerich & Payne, Inc. (HP)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Helmerich & Payne, Inc. (NYSE:HP).

Is Helmerich & Payne, Inc. (NYSE:HP) a buy, sell, or hold? Investors who are in the know were turning bullish. The number of bullish hedge fund positions increased by 6 recently. Helmerich & Payne, Inc. (NYSE:HP) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HP 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.

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 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Michael Burry of Scion Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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 let’s view the key hedge fund action surrounding Helmerich & Payne, Inc. (NYSE:HP).

Hedge fund activity in Helmerich & Payne, Inc. (NYSE:HP)

Heading into the third quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the first quarter of 2020. On the other hand, there were a total of 33 hedge funds with a bullish position in HP a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, John Overdeck and David Siegel’s Two Sigma Advisors has the largest position in Helmerich & Payne, Inc. (NYSE:HP), worth close to $23.3 million, accounting for 0.1% of its total 13F portfolio. On Two Sigma Advisors’s heels is Ken Fisher of Fisher Asset Management, with a $22.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Renaissance Technologies, Cliff Asness’s AQR Capital Management and Adam Peterson’s Magnolia Capital Fund. In terms of the portfolio weights assigned to each position Scion Asset Management allocated the biggest weight to Helmerich & Payne, Inc. (NYSE:HP), around 2.32% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, designating 2.17 percent of its 13F equity portfolio to HP.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the most outsized position in Helmerich & Payne, Inc. (NYSE:HP). Holocene Advisors had $7.9 million invested in the company at the end of the quarter. Michael Burry’s Scion Asset Management also initiated a $7.3 million position during the quarter. The other funds with brand new HP positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Donald Sussman’s Paloma Partners, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s check out hedge fund activity in other stocks similar to Helmerich & Payne, Inc. (NYSE:HP). We will take a look at Piedmont Office Realty Trust, Inc. (NYSE:PDM), Laureate Education, Inc. (NASDAQ:LAUR), Cathay General Bancorp (NASDAQ:CATY), Cabot Corporation (NYSE:CBT), Alcoa Corporation (NYSE:AA), First Majestic Silver Corp (NYSE:AG), and The Goodyear Tire & Rubber Company (NASDAQ:GT). This group of stocks’ market values are closest to HP’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $188 million in HP’s case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 11 bullish hedge fund positions. Helmerich & Payne, Inc. (NYSE:HP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HP is 90. 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 HP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HP were disappointed as the stock returned -22.7% 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.

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