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Billionaire David Einhorn, Smart Money Buying Up Shares Of CONSOL Energy Inc. (CNX)

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The smart money is buying CONSOL Energy Inc. (NYSE:CNX). According to SEC filings, Southeastern Asset Management increased its position from 44,949,771 shares at the end of Q1 to 48,212,227 shares, good for 21.1% of Consol’s float. In addition, David Einhorn’s Greenlight Capital increased its position from 20,583,070 shares at the end of the first quarter to 29,609,565 shares. Because of their recent buys, the two institutions now own more than a third of Consol Energy’s common shares. The two institutions have been buying while Consol Energy’s stock has been falling. Because of weak coal and natural gas prices, Consol Energy’s stock is down by 47% year-to-date and by 55.87% in the last 12 months.

Greenlight Capital

We mention the hedge fund activity around Consol Energy because following hedge fund activity can generate alpha. Our research shows that the 15 most popular small-cap stocks among hedge funds have outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012, and they managed to return more than 123% over the ensuing 2.5+ years and outperformed the S&P 500 Index by over 66 percentage points (read the details here).

Although CONSOL Energy Inc. (NYSE:CNX) has transformed itself from a coal company to a hybrid natural gas and coal producer, coal still makes up 57.6% of Consol’s revenues. Due to the declining coal prices, many coal companies have declared bankruptcy or are thought to be pondering bankruptcy. Natural gas prices have also fallen considerably due to an industrywide surplus.

The low natural gas and coal prices are negatively affecting even the strongest companies in the sector. Consol Energy recently warned that its Q2 earnings will be worse than expectations, with management warning that the company will report a loss from operations in the second quarter despite meeting its total production guidance for the coal and E&P natural gas divisions. In addition, management also warned that Consol will take an asset impairment charge to reflect lower commodity prices.

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