We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Comstock Resources Inc (NYSE:CRK) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Comstock Resources Inc (NYSE:CRK) investors should be aware of an increase in activity from the world’s largest hedge funds of late. CRK was in 7 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 5 hedge funds in our database with CRK positions at the end of the previous quarter. Our calculations also showed that CRK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
According to most stock holders, hedge funds are seen as slow, outdated financial tools of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers look at the elite of this group, about 850 funds. It is estimated that this group of investors oversee the lion’s share of the hedge fund industry’s total asset base, and by observing their inimitable equity investments, Insider Monkey has spotted several investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the recent hedge fund action regarding Comstock Resources Inc (NYSE:CRK).
Hedge fund activity in Comstock Resources Inc (NYSE:CRK)
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in CRK a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Comstock Resources Inc (NYSE:CRK) was held by Arosa Capital Management, which reported holding $1.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $1.1 million position. Other investors bullish on the company included Millennium Management, JS Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Arosa Capital Management allocated the biggest weight to Comstock Resources Inc (NYSE:CRK), around 0.25% of its 13F portfolio. JS Capital is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to CRK.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Comstock Resources Inc (NYSE:CRK). Arrowstreet Capital had $1.1 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Comstock Resources Inc (NYSE:CRK) but similarly valued. These stocks are Enerpac Tool Group Corp. (NYSE:EPAC), Studio City International Holdings Limited (NYSE:MSC), ForeScout Technologies, Inc. (NASDAQ:FSCT), and Kronos Worldwide, Inc. (NYSE:KRO). This group of stocks’ market caps are closest to CRK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EPAC | 20 | 314293 | 9 |
| MSC | 4 | 239381 | 0 |
| FSCT | 21 | 419129 | 2 |
| KRO | 13 | 72839 | 4 |
| Average | 14.5 | 261411 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $261 million. That figure was $4 million in CRK’s case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 4 bullish hedge fund positions. Comstock Resources Inc (NYSE:CRK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CRK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRK investors were disappointed as the stock returned -22% during the same time period 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 most of these stocks already outperformed the market in 2020.
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.
