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Goodrich Petroleum Corporation (GDP): Hedge Funds Mostly In Wait-and-See Mode

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Goodrich Petroleum Corporation (NYSE:GDP).

Is Goodrich Petroleum Corporation (NYSE:GDP) a bargain? Prominent investors are in an optimistic mood. The number of long hedge fund positions increased by 1 lately. Our calculations also showed that GDP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GDP was in 6 hedge funds’ portfolios at the end of September. There were 5 hedge funds in our database with GDP holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a peek at the key hedge fund action surrounding Goodrich Petroleum Corporation (NYSE:GDP).

How are hedge funds trading Goodrich Petroleum Corporation (NYSE:GDP)?

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GDP over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Anchorage Advisors, managed by Kevin Michael Ulrich and Anthony Davis, holds the most valuable position in Goodrich Petroleum Corporation (NYSE:GDP). Anchorage Advisors has a $16.7 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Deep Basin Capital, led by Matt Smith, holding a $6.1 million position; 0.5% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish encompass Renaissance Technologies, Phill Gross and Robert Atchinson’s Adage Capital Management and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital. In terms of the portfolio weights assigned to each position Anchorage Advisors allocated the biggest weight to Goodrich Petroleum Corporation (NYSE:GDP), around 0.96% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, designating 0.48 percent of its 13F equity portfolio to GDP.

Now, some big names were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in Goodrich Petroleum Corporation (NYSE:GDP). Adage Capital Management had $0.2 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks similar to Goodrich Petroleum Corporation (NYSE:GDP). These stocks are Manitex International, Inc. (NASDAQ:MNTX), Oconee Federal Financial Corp. (NASDAQ:OFED), EDAP TMS S.A. (NASDAQ:EDAP), and Strongbridge Biopharma plc (NASDAQ:SBBP). This group of stocks’ market valuations are closest to GDP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MNTX 8 10576 0
OFED 2 696 0
EDAP 6 5510 2
SBBP 9 23435 -1
Average 6.25 10054 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $24 million in GDP’s case. Strongbridge Biopharma plc (NASDAQ:SBBP) is the most popular stock in this table. On the other hand Oconee Federal Financial Corp. (NASDAQ:OFED) is the least popular one with only 2 bullish hedge fund positions. Goodrich Petroleum Corporation (NYSE:GDP) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GDP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GDP investors were disappointed as the stock returned -7.6% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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