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Hedge Funds Are Crazy About ConocoPhillips (COP)

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

ConocoPhillips (NYSE:COP) investors should be aware of an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that COP 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.

MILLENNIUM MANAGEMENT

Let’s take a look at the new hedge fund action regarding ConocoPhillips (NYSE:COP).

What does the smart money think about ConocoPhillips (NYSE:COP)?

At Q3’s end, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the second quarter of 2018. On the other hand, there were a total of 41 hedge funds with a bullish position in COP at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with COP PositionsThe largest stake in ConocoPhillips (NYSE:COP) was held by AQR Capital Management, which reported holding $326.4 million worth of stock at the end of September. It was followed by GLG Partners with a $280.3 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Arrowstreet Capital.

Now, key hedge funds were leading the bulls’ herd. Laurion Capital Management, managed by Benjamin A. Smith, initiated the biggest call position in ConocoPhillips (NYSE:COP). Laurion Capital Management had $19.7 million invested in the company at the end of the quarter. Ian Simm’s Impax Asset Management also made a $16.8 million investment in the stock during the quarter. The other funds with brand new COP positions are Vince Maddi and Shawn Brennan’s SIR Capital Management, Ian Cumming and Joseph Steinberg’s Leucadia National, and Brandon Haley’s Holocene Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ConocoPhillips (NYSE:COP) but similarly valued. We will take a look at Rio Tinto plc (NYSE:RIO), Diageo plc (NYSE:DEO), U.S. Bancorp (NYSE:USB), and HDFC Bank Limited (NYSE:HDB). All of these stocks’ market caps are similar to COP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RIO 20 944618 0
DEO 15 965351 0
USB 39 7393172 9
HDB 27 990230 3
Average 25.25 2573343 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $2.57 billion. That figure was $2.16 billion in COP’s case. U.S. Bancorp (NYSE:USB) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks ConocoPhillips (NYSE:COP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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