Hedge Funds Are Coming Back To Contura Energy, Inc. (CTRA)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Contura Energy, Inc. (NYSE:CTRA) and determine whether hedge funds skillfully traded this stock.

Is Contura Energy, Inc. (NYSE:CTRA) a cheap investment right now? The smart money was becoming hopeful. The number of long hedge fund positions improved by 3 in recent months. Contura Energy, Inc. (NYSE:CTRA) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. Our calculations also showed that CTRA 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). There were 16 hedge funds in our database with CTRA positions at the end of the first quarter.

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 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 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 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.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to go over the new hedge fund action surrounding Contura Energy, Inc. (NYSE:CTRA).

Hedge fund activity in Contura Energy, Inc. (NYSE:CTRA)

At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the first quarter of 2020. By comparison, 22 hedge funds held shares or bullish call options in CTRA 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.

The largest stake in Contura Energy, Inc. (NYSE:CTRA) was held by Highbridge Capital Management, which reported holding $4.4 million worth of stock at the end of September. It was followed by Whitebox Advisors with a $3 million position. Other investors bullish on the company included Alta Fundamental Advisers, Tontine Asset Management, and Mangrove Partners. In terms of the portfolio weights assigned to each position Alta Fundamental Advisers allocated the biggest weight to Contura Energy, Inc. (NYSE:CTRA), around 3.61% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, designating 0.67 percent of its 13F equity portfolio to CTRA.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Newtyn Management, managed by Noah Levy and Eugene Dozortsev, established the biggest position in Contura Energy, Inc. (NYSE:CTRA). Newtyn Management had $0.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Travis Cocke’s Voss Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks similar to Contura Energy, Inc. (NYSE:CTRA). We will take a look at Briggs & Stratton Corporation (NYSE:BGG), ClearSign Technologies Corporation (NASDAQ:CLIR), Coda Octopus Group, Inc. (NASDAQ:CODA), Jerash Holdings (US), Inc. (NASDAQ:JRSH), 9 Meters Biopharma, Inc. (NASDAQ:NMTR), ClearPoint Neuro Inc. (NASDAQ:CLPT), and Randolph Bancorp, Inc. (NASDAQ:RNDB). This group of stocks’ market valuations match CTRA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BGG 11 7323 7
CLIR 2 197 2
CODA 6 829 3
JRSH 3 909 0
NMTR 3 15288 1
CLPT 3 424 0
RNDB 2 571 0
Average 4.3 3649 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $21 million in CTRA’s case. Briggs & Stratton Corporation (NYSE:BGG) is the most popular stock in this table. On the other hand ClearSign Technologies Corporation (NASDAQ:CLIR) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Contura Energy, Inc. (NYSE:CTRA) is more popular among hedge funds. Our overall hedge fund sentiment score for CTRA is 75.8. 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. 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 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on CTRA as the stock returned 140.8% since the end of June 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.