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Centennial Resource Development, Inc. (CDEV): Hedge Funds Are Nibbling

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Centennial Resource Development, Inc. (NASDAQ:CDEV) and determine whether hedge funds skillfully traded this stock.

Is Centennial Resource Development, Inc. (NASDAQ:CDEV) a worthy investment right now? Money managers were in a bullish mood. The number of bullish hedge fund bets rose by 2 in recent months. Centennial Resource Development, Inc. (NASDAQ:CDEV) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. Our calculations also showed that CDEV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to go over the recent hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).

What does smart money think about Centennial Resource Development, Inc. (NASDAQ:CDEV)?

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CDEV over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is CDEV A Good Stock To Buy?

The largest stake in Centennial Resource Development, Inc. (NASDAQ:CDEV) was held by Prescott Group Capital Management, which reported holding $6.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $5.1 million position. Other investors bullish on the company included SailingStone Capital Partners, Millennium Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Centennial Resource Development, Inc. (NASDAQ:CDEV), around 3.4% of its 13F portfolio. SailingStone Capital Partners is also relatively very bullish on the stock, setting aside 1.66 percent of its 13F equity portfolio to CDEV.

As industrywide interest jumped, key money managers have jumped into Centennial Resource Development, Inc. (NASDAQ:CDEV) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Arrowstreet Capital had $3.3 million invested in the company at the end of the quarter. Ed Bosek’s BeaconLight Capital also made a $0.4 million investment in the stock during the quarter. The other funds with brand new CDEV positions are Bruce Kovner’s Caxton Associates LP, Dmitry Balyasny’s Balyasny Asset Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Centennial Resource Development, Inc. (NASDAQ:CDEV) but similarly valued. These stocks are Covenant Transportation Group, Inc. (NASDAQ:CVTI), SmartFinancial, Inc. (NASDAQ:SMBK), Northwest Pipe Company (NASDAQ:NWPX), BBX Capital Corporation (NYSE:BBX), Farmland Partners Inc (NYSE:FPI), Lizhi Inc. (NASDAQ:LIZI), and SunCoke Energy, Inc (NYSE:SXC). All of these stocks’ market caps are closest to CDEV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVTI 10 14600 1
SMBK 7 20722 0
NWPX 13 39003 0
BBX 11 11507 0
FPI 8 3574 1
LIZI 1 120 0
SXC 19 58934 2
Average 9.9 21209 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.9 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $39 million in CDEV’s case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table. On the other hand Lizhi Inc. (NASDAQ:LIZI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Centennial Resource Development, Inc. (NASDAQ:CDEV) is more popular among hedge funds. Our overall hedge fund sentiment score for CDEV is 27.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately CDEV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CDEV were disappointed as the stock returned -32.4% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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