You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is Cimarex Energy Co (NYSE:XEC) a buy here? Investors who are in the know are betting on the stock. The number of long hedge fund bets increased by 2 in recent months. Our calculations also showed that XEC isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s check out the latest hedge fund action encompassing Cimarex Energy Co (NYSE:XEC).
Hedge fund activity in Cimarex Energy Co (NYSE:XEC)
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards XEC over the last 13 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Cimarex Energy Co (NYSE:XEC), with a stake worth $522.6 million reported as of the end of September. Trailing Diamond Hill Capital was International Value Advisers, which amassed a stake valued at $284.6 million. Adage Capital Management, AQR Capital Management, and Encompass Capital Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Encompass Capital Advisors, managed by Todd J. Kantor, initiated the biggest position in Cimarex Energy Co (NYSE:XEC). Encompass Capital Advisors had $51.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $37.4 million position during the quarter. The other funds with brand new XEC positions are Vince Maddi and Shawn Brennan’s SIR Capital Management, Ken Griffin’s Citadel Investment Group, and Till Bechtolsheimer’s Arosa Capital Management.
Let’s now review 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 Hyatt Hotels Corporation (NYSE:H), Teledyne Technologies Incorporated (NYSE:TDY), Carvana Co. (NYSE:CVNA), and Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY). This group of stocks’ market caps are closest to XEC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| H | 31 | 826605 | -7 |
| TDY | 19 | 436271 | -5 |
| CVNA | 33 | 1005885 | 6 |
| ALNY | 32 | 727850 | -3 |
| Average | 28.75 | 749153 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $749 million. That figure was $1.19 billion in XEC’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Teledyne Technologies Incorporated (NYSE:TDY) is the least popular one with only 19 bullish hedge fund positions. Cimarex Energy Co (NYSE:XEC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CVNA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
