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Chaparral Energy, Inc. (CHAP): Hedge Funds In Wait-and-See Mode

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Chaparral Energy, Inc. (NYSE:CHAP).

Hedge fund interest in Chaparral Energy, Inc. (NYSE:CHAP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CHAP to other stocks including Natural Alternatives International, Inc. (NASDAQ:NAII), Sorl Auto Parts, Inc. (NASDAQ:SORL), and Opiant Pharmaceuticals, Inc. (NASDAQ:OPNT) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are dozens of tools stock market investors use to assess their stock investments. A couple of the less known tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top money managers can outpace the broader indices by a superb amount (see the details here).


Marc Lasry of Avenue 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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the key hedge fund action encompassing Chaparral Energy, Inc. (NYSE:CHAP).

What does smart money think about Chaparral Energy, Inc. (NYSE:CHAP)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in CHAP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Chaparral Energy, Inc. (NYSE:CHAP) was held by Strategic Value Partners, which reported holding $18.6 million worth of stock at the end of September. It was followed by Contrarian Capital with a $5.3 million position. Other investors bullish on the company included Paloma Partners, Fir Tree, and Avenue Capital. In terms of the portfolio weights assigned to each position Strategic Value Partners allocated the biggest weight to Chaparral Energy, Inc. (NYSE:CHAP), around 4.8% of its 13F portfolio. Venor Capital Management is also relatively very bullish on the stock, dishing out 1.11 percent of its 13F equity portfolio to CHAP.

Judging by the fact that Chaparral Energy, Inc. (NYSE:CHAP) has experienced falling interest from hedge fund managers, logic holds that there exists a select few hedge funds who sold off their entire stakes heading into Q4. Intriguingly, Renaissance Technologies sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $0.1 million in stock. Ari Zweiman’s fund, 683 Capital Partners, also sold off its stock, about $0.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Chaparral Energy, Inc. (NYSE:CHAP) but similarly valued. We will take a look at Natural Alternatives International, Inc. (NASDAQ:NAII), Sorl Auto Parts, Inc. (NASDAQ:SORL), Opiant Pharmaceuticals, Inc. (NASDAQ:OPNT), and SMTC Corporation (NASDAQ:SMTX). This group of stocks’ market values are closest to CHAP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NAII 1 4501 0
SORL 2 420 0
OPNT 2 4520 1
SMTX 4 5246 1
Average 2.25 3672 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $34 million in CHAP’s case. SMTC Corporation (NASDAQ:SMTX) is the most popular stock in this table. On the other hand Natural Alternatives International, Inc. (NASDAQ:NAII) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Chaparral Energy, Inc. (NYSE:CHAP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHAP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CHAP were disappointed as the stock returned -19.4% during the first two months of the fourth 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 among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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