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Devon Energy Corporation (DVN): Hedge Funds Fumbled

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Devon Energy Corporation (NYSE:DVN).

Devon Energy Corporation (NYSE:DVN) has seen an increase in hedge fund interest lately. Our calculations also showed that DVN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are several signals market participants put to use to appraise their holdings. Some of the most innovative signals are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can trounce the broader indices by a very impressive amount (see the details here).

RENAISSANCE TECHNOLOGIES

Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to review the latest hedge fund action regarding Devon Energy Corporation (NYSE:DVN).

What have hedge funds been doing with Devon Energy Corporation (NYSE:DVN)?

Heading into the first quarter of 2020, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DVN over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is DVN A Good Stock To Buy?

The largest stake in Devon Energy Corporation (NYSE:DVN) was held by Renaissance Technologies, which reported holding $181.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $168.8 million position. Other investors bullish on the company included Fisher Asset Management, Holocene Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Devon Energy Corporation (NYSE:DVN), around 6.62% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, earmarking 4.72 percent of its 13F equity portfolio to DVN.

Now, specific money managers were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Devon Energy Corporation (NYSE:DVN). Holocene Advisors had $57 million invested in the company at the end of the quarter. Vince Maddi and Shawn Brennan’s SIR Capital Management also initiated a $35.3 million position during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Dan Sobol and Lisa Hess’s SkyTop Capital Management, and John D. Gillespie’s Prospector Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Devon Energy Corporation (NYSE:DVN) but similarly valued. We will take a look at RPM International Inc. (NYSE:RPM), CPFL Energia S.A. (NYSE:CPL), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and American Financial Group (NYSE:AFG). All of these stocks’ market caps resemble DVN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RPM 31 301067 -3
CPL 4 15007 1
NBIX 42 1229214 -3
AFG 25 387186 -2
Average 25.5 483119 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $483 million. That figure was $914 million in DVN’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Devon Energy Corporation (NYSE:DVN) is more popular among hedge funds. 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 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately DVN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DVN were disappointed as the stock returned -67.8% during the first two months of 2020 (through March 9th) 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 Q1.

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

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