Should You Avoid Cenovus Energy Inc (USA) (CVE)?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Cenovus Energy Inc (USA) (NYSE:CVE) .

Is Cenovus Energy Inc (USA) (NYSE:CVE) a bargain? Money managers seem to be becoming less hopeful as the number of bullish hedge fund investments contracted by three last quarter. In this way, the company was included in the equity portfolios of 20 funds tracked by Insider Monkey at the end of September. At the end of this article we will also compare CVE to other stocks including Oneok Partners LP (NYSE:OKS), ArcelorMittal (ADR) (NYSE:MT), and MPLX LP (NYSE:MPLX) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, we’re going to take a look at the latest action encompassing Cenovus Energy Inc (USA) (NYSE:CVE).

How are hedge funds trading Cenovus Energy Inc (USA) (NYSE:CVE)?

Heading into the fourth quarter of 2016, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 13% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in CVE heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the most valuable position in Cenovus Energy Inc (USA) (NYSE:CVE), worth close to $192.2 million, accounting for 1.2% of its total 13F portfolio. On Pzena Investment Management’s heels is AQR Capital Management, led by Cliff Asness, which holds a $68 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish comprise Jim Simons’ Renaissance Technologies, Israel Englander’s Millennium Management and Jonathon Jacobson’s Highfields Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since Cenovus Energy Inc (USA) (NYSE:CVE) has weathered declining sentiment from the smart money, it’s safe to say that there is a sect of hedge funds that elected to cut their full holdings during the third quarter. Interestingly, First Eagle Investment Management sold off the biggest investment of all the hedgies followed by Insider Monkey, comprising an estimated $350.4 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund sold off about $47.8 million worth of shares.

Let’s also examine hedge fund activity in other stocks similar to Cenovus Energy Inc (USA) (NYSE:CVE). These stocks are Oneok Partners LP (NYSE:OKS), ArcelorMittal (ADR) (NYSE:MT), MPLX LP (NYSE:MPLX), and KLA-Tencor Corporation (NASDAQ:KLAC). This group of stocks’ market valuations are closest to CVE’s market valuation.

As you can see these stocks had an average of 22 investors with bullish positions and the average amount invested in these stocks was $372 million, compared to $365 million in CVE’s case. KLA-Tencor Corporation (NASDAQ:KLAC) is the most popular stock in this table. On the other hand Oneok Partners LP (NYSE:OKS) is the least popular one with only nine bullish hedge fund positions. Cenovus Energy Inc (USA) (NYSE:CVE) 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. In this regard KLA-Tencor Corporation (NASDAQ:KLAC) might be a better candidate to consider taking a long position in.