Concho Resources (CXO): These Hedge Funds Caught Flat-Footed

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 (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Concho Resources Inc. (NYSE:CXO), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is Concho Resources Inc. (NYSE:CXO) undervalued? The smart money is buying. The number of bullish hedge fund positions rose by 9 in recent months. Our calculations also showed that CXO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). CXO was in 39 hedge funds’ portfolios at the end of December. There were 30 hedge funds in our database with CXO holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing Concho Resources Inc. (NYSE:CXO).

What does smart money think about Concho Resources Inc. (NYSE:CXO)?

At Q4’s end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CXO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is CXO A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Concho Resources Inc. (NYSE:CXO), with a stake worth $326.9 million reported as of the end of September. Trailing Citadel Investment Group was Holocene Advisors, which amassed a stake valued at $68.1 million. Millennium Management, Deep Basin Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Concho Resources Inc. (NYSE:CXO), around 5.14% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, designating 3.94 percent of its 13F equity portfolio to CXO.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, created the largest position in Concho Resources Inc. (NYSE:CXO). Holocene Advisors had $68.1 million invested in the company at the end of the quarter. Matt Smith’s Deep Basin Capital also initiated a $54 million position during the quarter. The following funds were also among the new CXO investors: Zach Schreiber’s Point State Capital, Dmitry Balyasny’s Balyasny Asset Management, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Concho Resources Inc. (NYSE:CXO) but similarly valued. These stocks are Amcor plc (NYSE:AMCR), Nasdaq, Inc. (NASDAQ:NDAQ), Shinhan Financial Group Co., Ltd. (NYSE:SHG), and AmerisourceBergen Corporation (NYSE:ABC). This group of stocks’ market caps match CXO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMCR 10 48071 -7
NDAQ 25 181346 0
SHG 3 8979 -2
ABC 40 580579 2
Average 19.5 204744 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $764 million in CXO’s case. AmerisourceBergen Corporation (NYSE:ABC) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 3 bullish hedge fund positions. Concho Resources Inc. (NYSE:CXO) 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. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CXO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CXO were disappointed as the stock returned -54.1% 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 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.