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Concho Resources Inc. (CXO): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Concho Resources Inc. (NYSE:CXO) based on that data.

Is Concho Resources Inc. (NYSE:CXO) worth your attention right now? The best stock pickers are selling. The number of bullish hedge fund positions retreated by 8 recently. Our calculations also showed that CXO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the latest hedge fund action surrounding Concho Resources Inc. (NYSE:CXO).

How have hedgies been trading Concho Resources Inc. (NYSE:CXO)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in CXO a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Concho Resources Inc. (NYSE:CXO), which was worth $277.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $42 million worth of shares. Adage Capital Management, Balyasny Asset Management, and Deep Basin Capital 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 SIR Capital Management allocated the biggest weight to Concho Resources Inc. (NYSE:CXO), around 5.39% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, designating 5.04 percent of its 13F equity portfolio to CXO.

Due to the fact that Concho Resources Inc. (NYSE:CXO) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that elected to cut their full holdings in the first quarter. Interestingly, Zach Schreiber’s Point State Capital sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $34.2 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund cut about $26.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 8 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Concho Resources Inc. (NYSE:CXO) but similarly valued. We will take a look at Cna Financial Corporation (NYSE:CNA), Kirkland Lake Gold Ltd. (NYSE:KL), Huntington Bancshares Incorporated (NASDAQ:HBAN), and PerkinElmer, Inc. (NYSE:PKI). This group of stocks’ market caps are closest to CXO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNA 12 51546 -3
KL 28 552273 4
HBAN 29 85788 4
PKI 21 647867 1
Average 22.5 334369 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $492 million in CXO’s case. Huntington Bancshares Incorporated (NASDAQ:HBAN) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Concho Resources Inc. (NYSE:CXO) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on CXO as the stock returned 27.7% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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