Did Hedge Funds Make The Right Call On Cabot Oil & Gas Corporation (COG) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Cabot Oil & Gas Corporation (NYSE:COG) and determine whether the smart money was really smart about this stock.

Is Cabot Oil & Gas Corporation (NYSE:COG) a buy, sell, or hold? Prominent investors were in a bullish mood. The number of long hedge fund bets increased by 3 in recent months. Our calculations also showed that COG 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). COG was in 37 hedge funds’ portfolios at the end of the first quarter of 2020. There were 34 hedge funds in our database with COG positions at the end of the previous quarter.

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 58 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.

George Soros of Soros Fund Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the recent hedge fund action encompassing Cabot Oil & Gas Corporation (NYSE:COG).

What does smart money think about Cabot Oil & Gas Corporation (NYSE:COG)?

At the end of the first quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in COG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is COG A Good Stock To Buy?

The largest stake in Cabot Oil & Gas Corporation (NYSE:COG) was held by Citadel Investment Group, which reported holding $135.1 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $53.1 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Cabot Oil & Gas Corporation (NYSE:COG), around 5% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 4.98 percent of its 13F equity portfolio to COG.

As aggregate interest increased, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Cabot Oil & Gas Corporation (NYSE:COG). Citadel Investment Group had $135.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $53.1 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Todd J. Kantor’s Encompass Capital Advisors, and Till Bechtolsheimer’s Arosa Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Cabot Oil & Gas Corporation (NYSE:COG). We will take a look at Iron Mountain Incorporated (NYSE:IRM), NRG Energy Inc (NYSE:NRG), Americold Realty Trust (NYSE:COLD), and Mobile TeleSystems OJSC (NYSE:MBT). This group of stocks’ market values resemble COG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IRM 19 49061 2
NRG 38 859890 -4
COLD 25 275635 -1
MBT 9 377645 -4
Average 22.75 390558 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $391 million. That figure was $469 million in COG’s case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand Mobile TeleSystems OJSC (NYSE:MBT) is the least popular one with only 9 bullish hedge fund positions. Cabot Oil & Gas Corporation (NYSE:COG) 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 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 gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately COG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COG were disappointed as the stock returned 0.5% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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