Are Hedge Funds Going To Get Burned By CVR Energy, Inc. (CVI) ?

Is CVR Energy, Inc. (NYSE:CVI) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is CVR Energy, Inc. (NYSE:CVI) worth your attention right now? Hedge funds are in a pessimistic mood. The number of long hedge fund bets dropped by 3 recently. Our calculations also showed that CVI isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Carl Icahn

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the recent hedge fund action surrounding CVR Energy, Inc. (NYSE:CVI).

Hedge fund activity in CVR Energy, Inc. (NYSE:CVI)

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVI over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with CVI Positions

Among these funds, Icahn Capital LP held the most valuable stake in CVR Energy, Inc. (NYSE:CVI), which was worth $3559.2 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $90.8 million worth of shares. Moreover, Millennium Management, AQR Capital Management, and Citadel Investment Group were also bullish on CVR Energy, Inc. (NYSE:CVI), allocating a large percentage of their portfolios to this stock.

Judging by the fact that CVR Energy, Inc. (NYSE:CVI) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of funds that slashed their entire stakes last quarter. Interestingly, Ray Dalio’s Bridgewater Associates cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $2.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund cut about $1.4 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to CVR Energy, Inc. (NYSE:CVI). These stocks are Skechers USA Inc (NYSE:SKX), Axis Capital Holdings Limited (NYSE:AXS), The Hanover Insurance Group, Inc. (NYSE:THG), and Williams-Sonoma, Inc. (NYSE:WSM). This group of stocks’ market values resemble CVI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SKX 23 369669 -1
AXS 27 822381 -4
THG 20 254847 -3
WSM 27 304968 -2
Average 24.25 437966 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $438 million. That figure was $3712 million in CVI’s case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand The Hanover Insurance Group, Inc. (NYSE:THG) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks CVR Energy, Inc. (NYSE:CVI) is even less popular than THG. Hedge funds dodged a bullet by taking a bearish stance towards CVI. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CVI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CVI investors were disappointed as the stock returned -10.6% during the third 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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