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Did Hedge Funds Make The Right Call On Cimarex Energy Co (XEC) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtCimarex Energy Co (NYSE:XEC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Cimarex Energy Co (NYSE:XEC) was in 35 hedge funds’ portfolios at the end of the first quarter of 2020. XEC has experienced an increase in enthusiasm from smart money of late. There were 33 hedge funds in our database with XEC holdings at the end of the previous quarter. Our calculations also showed that XEC 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Clint Carlson of Carlson Capital

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 look at the fresh hedge fund action surrounding Cimarex Energy Co (NYSE:XEC).

What have hedge funds been doing with Cimarex Energy Co (NYSE:XEC)?

Heading into the second quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XEC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is XEC A Good Stock To Buy?

The largest stake in Cimarex Energy Co (NYSE:XEC) was held by Citadel Investment Group, which reported holding $67.6 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $62.3 million position. Other investors bullish on the company included Encompass Capital Advisors, International Value Advisers, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Cimarex Energy Co (NYSE:XEC), around 5.2% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to XEC.

Consequently, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Cimarex Energy Co (NYSE:XEC). Arrowstreet Capital had $10.9 million invested in the company at the end of the quarter.  Renaissance Technologies also made a $7.4 million investment in the stock during the quarter. The following funds were also among the new XEC investors: Clint Carlson’s Carlson Capital, Till Bechtolsheimer’s Arosa Capital Management, and Bruce Kovner’s Caxton Associates LP.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cimarex Energy Co (NYSE:XEC) but similarly valued. We will take a look at American Equity Investment Life Holding Company (NYSE:AEL), Innospec Inc. (NASDAQ:IOSP), Papa John’s International, Inc. (NASDAQ:PZZA), and Merit Medical Systems, Inc. (NASDAQ:MMSI). This group of stocks’ market valuations are similar to XEC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEL 12 43458 -5
IOSP 14 70798 -4
PZZA 29 251238 1
MMSI 11 195740 -6
Average 16.5 140309 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $399 million in XEC’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand Merit Medical Systems, Inc. (NASDAQ:MMSI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Cimarex Energy Co (NYSE:XEC) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on XEC as the stock returned 64.9% in Q2 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.