Hedge Funds Are Warming Up To Hess Corporation (HES)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Hess Corporation (NYSE:HES).

Is Hess Corporation (NYSE:HES) a buy here? Investors who are in the know are in an optimistic mood. The number of long hedge fund bets increased by 1 recently. Our calculations also showed that HES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the latest hedge fund action regarding Hess Corporation (NYSE:HES).

Hedge fund activity in Hess Corporation (NYSE:HES)

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in HES over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Hess Corporation (NYSE:HES) was held by Elliott Management, which reported holding $405.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $143.1 million position. Other investors bullish on the company included Impala Asset Management, Empyrean Capital Partners, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Hess Corporation (NYSE:HES), around 7.94% of its portfolio. Anchor Bolt Capital is also relatively very bullish on the stock, earmarking 4.51 percent of its 13F equity portfolio to HES.

As aggregate interest increased, specific money managers have been driving this bullishness. D E Shaw, managed by David E. Shaw, initiated the biggest call position in Hess Corporation (NYSE:HES). D E Shaw had $3.6 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.6 million investment in the stock during the quarter. The other funds with brand new HES positions are Jonathan Berger’s Birch Grove Capital, Jonathan Dawson’s Southport Management, and Jonathan Berger’s Birch Grove Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hess Corporation (NYSE:HES) but similarly valued. These stocks are Copart, Inc. (NASDAQ:CPRT), IAC/InterActiveCorp (NASDAQ:IAC), Arista Networks Inc (NYSE:ANET), and Keysight Technologies Inc (NYSE:KEYS). This group of stocks’ market valuations match HES’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $968 million. That figure was $922 million in HES’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 20 bullish hedge fund positions. Hess Corporation (NYSE:HES) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HES wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HES investors were disappointed as the stock returned 2.7% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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