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Did Hedge Funds Drop The Ball On WPX Energy Inc (WPX) ?

While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors kept their optimism regarding the current bull run in the fourth quarter, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding WPX Energy Inc (NYSE:WPX).

WPX Energy Inc (NYSE:WPX) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. WPX was in 46 hedge funds’ portfolios at the end of December. There were 53 hedge funds in our database with WPX holdings at the end of the previous quarter. Our calculations also showed that WPX isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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.

Charles Davidson - Wexford Capital

We’re going to review the fresh hedge fund action encompassing WPX Energy Inc (NYSE:WPX).

How have hedgies been trading WPX Energy Inc (NYSE:WPX)?

At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the second quarter of 2018. By comparison, 41 hedge funds held shares or bullish call options in WPX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

WPX_apr2019

Among these funds, Millennium Management held the most valuable stake in WPX Energy Inc (NYSE:WPX), which was worth $88.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $78.7 million worth of shares. Moreover, Adage Capital Management, Perella Weinberg Partners, and Deep Basin Capital were also bullish on WPX Energy Inc (NYSE:WPX), allocating a large percentage of their portfolios to this stock.

Seeing as WPX Energy Inc (NYSE:WPX) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few money managers who sold off their full holdings last quarter. At the top of the heap, John Labanowski’s Brenham Capital Management dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth close to $100.4 million in stock. Andreas Halvorsen’s fund, Viking Global, also dumped its stock, about $68.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 7 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to WPX Energy Inc (NYSE:WPX). We will take a look at EPR Properties (NYSE:EPR), The Goodyear Tire & Rubber Company (NASDAQ:GT), United Therapeutics Corporation (NASDAQ:UTHR), and Popular Inc (NASDAQ:BPOP). This group of stocks’ market valuations are closest to WPX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EPR 22 155570 9
GT 30 589242 5
UTHR 23 972269 5
BPOP 32 804171 4
Average 26.75 630313 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $630 million. That figure was $728 million in WPX’s case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand EPR Properties (NYSE:EPR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks WPX Energy Inc (NYSE:WPX) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on WPX as the stock returned 34.2% 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.

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

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