Did Hedge Funds Make The Right Call On Concho Resources Inc. (CXO) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Concho Resources Inc. (NYSE:CXO) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Concho Resources Inc. (NYSE:CXO) a cheap investment now? The best stock pickers were becoming less hopeful. The number of bullish hedge fund positions retreated by 8 in recent months. Our calculations also showed that CXO 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.

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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to go over the fresh hedge fund action surrounding Concho Resources Inc. (NYSE:CXO).

Hedge fund activity in Concho Resources Inc. (NYSE:CXO)

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in CXO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CXO A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Concho Resources Inc. (NYSE:CXO), with a stake worth $277.6 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $42 million. Adage Capital Management, Balyasny Asset Management, and Deep Basin Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Concho Resources Inc. (NYSE:CXO), around 5.39% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, designating 5.04 percent of its 13F equity portfolio to CXO.

Due to the fact that Concho Resources Inc. (NYSE:CXO) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds who were dropping their entire stakes by the end of the first quarter. It’s worth mentioning that Zach Schreiber’s Point State Capital said goodbye to the largest stake of all the hedgies followed by Insider Monkey, valued at close to $34.2 million in stock. Clint Carlson’s fund, Carlson Capital, also sold off its stock, about $26.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Concho Resources Inc. (NYSE:CXO). These stocks are Cna Financial Corporation (NYSE:CNA), Kirkland Lake Gold Ltd. (NYSE:KL), Huntington Bancshares Incorporated (NASDAQ:HBAN), and PerkinElmer, Inc. (NYSE:PKI). 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
CNA 12 51546 -3
KL 28 552273 4
HBAN 29 85788 4
PKI 21 647867 1
Average 22.5 334369 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $492 million in CXO’s case. Huntington Bancshares Incorporated (NASDAQ:HBAN) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Concho Resources Inc. (NYSE:CXO) 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 gained 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 CXO, though not to the same extent, as the stock returned 20.6% in Q2 and outperformed the market as well.

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