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This Metric Says You Are Smart to Sell Chesapeake Energy Corporation (CHK)

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Chesapeake Energy Corporation (NYSE:CHK) has experienced a decrease in enthusiasm from smart money recently.

Chesapeake Energy CorporationIn the eyes of most traders, hedge funds are assumed to be worthless, outdated financial vehicles of years past. While there are over 8000 funds with their doors open at present, we at Insider Monkey hone in on the crème de la crème of this club, close to 450 funds. Most estimates calculate that this group controls most of the smart money’s total asset base, and by keeping an eye on their best stock picks, we have discovered a number of investment strategies that have historically beaten the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as important, optimistic insider trading activity is another way to break down the marketplace. There are a number of incentives for an insider to get rid of shares of his or her company, but only one, very obvious reason why they would buy. Several academic studies have demonstrated the impressive potential of this method if shareholders understand what to do (learn more here).

With these “truths” under our belt, it’s important to take a glance at the latest action encompassing Chesapeake Energy Corporation (NYSE:CHK).

How have hedgies been trading Chesapeake Energy Corporation (NYSE:CHK)?

In preparation for this quarter, a total of 35 of the hedge funds we track were long in this stock, a change of -15% from one quarter earlier. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably.

When looking at the hedgies we track, Southeastern Asset Management, managed by Mason Hawkins, holds the most valuable position in Chesapeake Energy Corporation (NYSE:CHK). Southeastern Asset Management has a $1.8252 billion position in the stock, comprising 8.2% of its 13F portfolio. The second largest stake is held by Icahn Capital LP, managed by Carl Icahn, which held a $1.2185 billion position; the fund has 7.2% of its 13F portfolio invested in the stock. Some other hedge funds that are bullish include Bruce Berkowitz’s Fairholme (FAIRX), Israel Englander’s Millennium Management and Mohnish Pabrai’s Mohnish Pabrai.

Due to the fact that Chesapeake Energy Corporation (NYSE:CHK) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that elected to cut their full holdings in Q1. It’s worth mentioning that Bruce Kovner’s Caxton Associates LP dumped the largest investment of the 450+ funds we key on, worth about $16.6 million in call options. Ken Griffin’s fund, Citadel Investment Group, also dropped its stock, about $10.7 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 6 funds in Q1.

How are insiders trading Chesapeake Energy Corporation (NYSE:CHK)?

Insider trading activity, especially when it’s bullish, is best served when the primary stock in question has seen transactions within the past half-year. Over the latest six-month time period, Chesapeake Energy Corporation (NYSE:CHK) has seen 2 unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Chesapeake Energy Corporation (NYSE:CHK). These stocks are Talisman Energy Inc. (USA) (NYSE:TLM), Cabot Oil & Gas Corporation (NYSE:COG), Southwestern Energy Company (NYSE:SWN), and Range Resources Corp. (NYSE:RRC). This group of stocks belong to the independent oil & gas industry and their market caps match CHK’s market cap.

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