How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Noble Energy, Inc. (NYSE:NBL) and determine whether hedge funds had an edge regarding this stock.
Is Noble Energy, Inc. (NYSE:NBL) a bargain? The best stock pickers were becoming hopeful. The number of long hedge fund positions went up by 3 recently. Noble Energy, Inc. (NYSE:NBL) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 46. Our calculations also showed that NBL isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Noble Energy, Inc. (NYSE:NBL).
How have hedgies been trading Noble Energy, Inc. (NYSE:NBL)?
At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the first quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in NBL a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Noble Energy, Inc. (NYSE:NBL), which was worth $68.5 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $40.8 million worth of shares. Adage Capital Management, Millennium Management, and Citadel Investment Group 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 Noble Energy, Inc. (NYSE:NBL), around 7.1% of its 13F portfolio. SailingStone Capital Partners is also relatively very bullish on the stock, dishing out 1.33 percent of its 13F equity portfolio to NBL.
As industrywide interest jumped, key money managers were breaking ground themselves. Deep Basin Capital, managed by Matt Smith, created the largest position in Noble Energy, Inc. (NYSE:NBL). Deep Basin Capital had $3.7 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $1.9 million investment in the stock during the quarter. The other funds with brand new NBL positions are Paul Tudor Jones’s Tudor Investment Corp, Greg Poole’s Echo Street Capital Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Noble Energy, Inc. (NYSE:NBL) but similarly valued. We will take a look at Switch, Inc. (NYSE:SWCH), Grand Canyon Education Inc (NASDAQ:LOPE), Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), Tetra Tech, Inc. (NASDAQ:TTEK), Lancaster Colony Corporation (NASDAQ:LANC), Inovio Pharmaceuticals Inc (NYSE:INO), and FTI Consulting, Inc. (NYSE:FCN). This group of stocks’ market valuations match NBL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $364 million in NBL’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand Inovio Pharmaceuticals Inc (NYSE:INO) is the least popular one with only 14 bullish hedge fund positions. Noble Energy, Inc. (NYSE:NBL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NBL is 75.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately NBL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NBL were disappointed as the stock returned 11.3% 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.
Disclosure: None. This article was originally published at Insider Monkey.