Friday was a big day for many oil stock names after Chevron agreed to buy Anadarko Petroleum for $33 billion. Meanwhile another stock, Chesapeake Energy Corporation (NYSE:CHK), fell due to some Wall Street commentary. Let’s take a closer look at Chesapeake, Exxon Mobil Corporation (NYSE:XOM), Devon Energy Corp (NYSE:DVN), Hess Corporation (NYSE:HES), and Concho Resources Inc. (NYSE:CXO), and see how the smart money is positioned amid these stocks.
Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Chesapeake Energy Corporation (NYSE:CHK) fell on Friday and ended up in the red for the week after analyst Brian Singer of Goldman Sachs downgraded the stock to ‘Sell’ from ‘Neutral’. Singer also cut his price target to $2.5 from $2.75. The analyst writes that CHK has “less favorable competitive positioning on supply cost [and] corporate returns vs. peers and believe balance sheet improvement is still warranted” subsequent Chesapeake’s WildHorse purchase. Natural gas futures are unfortunately not as strong as some bulls would like either. Around 12% of the company’s float is short which indicates that some smart money funds might be a little cautious on the stock. Shares of Chesapeake Energy Corporation are up 50.95% year to date.
Exxon Mobil Corporation (NYSE:XOM) is in the spotlight after fellow big oil company Chevron bought mid-sized Anadarko Petroleum for $33 billion. Given where energy valuations are right now (rather cheap versus some historical measures), some think that other big oil companies with strong balance sheets such as Exxon Mobil could take advantage of the situation and expand more into shale. Of the around 700-740 elite funds we track, 53 funds owned $1.61 billion of Exxon Mobil Corporation (NYSE:XOM) on December 31, versus 53 funds and $2.08 billion respectively on September 30. Shares of Exxon Mobil are up 18.67% year to date.
Due to the Anadarko Petroleum deal, shares of Devon Energy Corp (NYSE:DVN), Hess Corporation (NYSE:HES), and Concho Resources Inc. (NYSE:CXO) all rose on Friday as sentiment around the names improved and some traders speculated that some of the names could be potential M&A targets of their own if the right situation developed. Many traders also hope that oil prices can rally and the global economy improves so that the demand and supply equation for oil improves. For the weekly petroleum data for the week ending April 5, 2019, commercial crude oil inventories rose by 7 million barrels from the previous week. In terms of inventories, they’re at 456.5 million barrels, which is around the five year average for this time of year.
Of the around 700-740 elite funds we track, 42 funds owned $1.17 billion of Devon Energy Corp (NYSE:DVN) on December 31, versus 47 funds and $1.55 billion respectively on September 30. 36 elite funds owned shares of Hess Corporation (NYSE:HES) as of the most recent 13-F reporting period while 35 top funds owned shares of Concho Resources Inc. (NYSE:CXO) at the end of December. Shares of Devon Energy are up 48% year to date. Concho Resources shares are up 10% and Hess shares are up 63% year to date.