Centennial Resource Development, Inc. (CDEV) vs. Top 20 Hedge Fund Stocks in 2019

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Centennial Resource Development, Inc. (NASDAQ:CDEV).

Centennial Resource Development, Inc. (NASDAQ:CDEV) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that CDEV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

According to most stock holders, hedge funds are assumed to be underperforming, outdated investment vehicles of years past. While there are more than 8000 funds with their doors open at the moment, Our researchers hone in on the aristocrats of this club, about 750 funds. These hedge fund managers manage most of the hedge fund industry’s total capital, and by monitoring their first-class stock picks, Insider Monkey has brought to light various investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to check out the recent hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).

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

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 65% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in CDEV a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

The largest stake in Centennial Resource Development, Inc. (NASDAQ:CDEV) was held by Citadel Investment Group, which reported holding $42.8 million worth of stock at the end of September. It was followed by Millennium Management with a $37 million position. Other investors bullish on the company included Kensico Capital, AQR Capital Management, and Luminus Management. In terms of the portfolio weights assigned to each position SailingStone Capital Partners allocated the biggest weight to Centennial Resource Development, Inc. (NASDAQ:CDEV), around 3.14% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, earmarking 2.88 percent of its 13F equity portfolio to CDEV.

As aggregate interest increased, some big names were leading the bulls’ herd. Luminus Management, managed by Jonathan Barrett and Paul Segal, initiated the largest position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Luminus Management had $20.4 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $9.8 million position during the quarter. The following funds were also among the new CDEV investors: Matt Smith’s Deep Basin Capital, David E. Shaw’s D E Shaw, and George McCabe’s Portolan Capital Management.

Let’s check out hedge fund activity in other stocks similar to Centennial Resource Development, Inc. (NASDAQ:CDEV). We will take a look at Revlon Inc (NYSE:REV), Hawaiian Holdings, Inc. (NASDAQ:HA), Kornit Digital Ltd. (NASDAQ:KRNT), and Arbor Realty Trust, Inc. (NYSE:ABR). This group of stocks’ market values are similar to CDEV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REV 33 230252 2
HA 11 82372 0
KRNT 12 53869 -1
ABR 12 99896 -2
Average 17 116597 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $233 million in CDEV’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Hawaiian Holdings, Inc. (NASDAQ:HA) is the least popular one with only 11 bullish hedge fund positions. Centennial Resource Development, Inc. (NASDAQ:CDEV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CDEV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CDEV were disappointed as the stock returned -58.1% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
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.