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

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about Concho Resources Inc. (NYSE:CXO).

Is Concho Resources Inc. (NYSE:CXO) the right pick for your portfolio? Hedge funds are taking a bullish view. The number of long hedge fund bets went up by 3 recently. Our calculations also showed that CXO isn’t among the 30 most popular stocks among hedge funds. CXO was in 35 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 32 hedge funds in our database with CXO holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

SAC CAPITAL ADVISORS

We’re going to take a gander at the recent hedge fund action encompassing Concho Resources Inc. (NYSE:CXO).

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

At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CXO over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CXO_mar2019

More specifically, Point72 Asset Management was the largest shareholder of Concho Resources Inc. (NYSE:CXO), with a stake worth $83.8 million reported as of the end of September. Trailing Point72 Asset Management was Citadel Investment Group, which amassed a stake valued at $62.5 million. Renaissance Technologies, Millennium Management, and SailingStone Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, some big names were leading the bulls’ herd. Renaissance Technologies, managed by Jim Simons, initiated the largest position in Concho Resources Inc. (NYSE:CXO). Renaissance Technologies had $46.2 million invested in the company at the end of the quarter. MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners also made a $30.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Perella Weinberg Partners, Todd J. Kantor’s Encompass Capital Advisors, and Matt Smith’s Deep Basin Capital.

Let’s go over 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 Royal Caribbean Cruises Ltd. (NYSE:RCL), Spotify Technology S.A. (NYSE:SPOT), PPL Corporation (NYSE:PPL), and Telefonica Brasil SA (NYSE:VIV). This group of stocks’ market values are closest to CXO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RCL 52 1579217 10
SPOT 45 2877833 -22
PPL 23 798188 -1
VIV 12 151235 -1
Average 33 1351618 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1352 million. That figure was $451 million in CXO’s case. Royal Caribbean Cruises Ltd. (NYSE:RCL) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately CXO wasn’t in this group. Hedge funds that bet on CXO were disappointed as the stock returned 0.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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