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Hedge Funds Are Dumping Whiting Petroleum Corporation (WLL)

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Whiting Petroleum Corporation (NYSE:WLL).

Is Whiting Petroleum Corporation (NYSE:WLL) going to take off soon? The best stock pickers are turning less bullish. The number of long hedge fund bets fell by 2 recently. Our calculations also showed that WLL isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

WLL_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the latest hedge fund action surrounding Whiting Petroleum Corporation (NYSE:WLL).

What does smart money think about Whiting Petroleum Corporation (NYSE:WLL)?

At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WLL over the last 16 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Jonathan Barrett Luminus Management

The largest stake in Whiting Petroleum Corporation (NYSE:WLL) was held by Fine Capital Partners, which reported holding $75.1 million worth of stock at the end of March. It was followed by Encompass Capital Advisors with a $65.1 million position. Other investors bullish on the company included AQR Capital Management, GMT Capital, and Perella Weinberg Partners.

Judging by the fact that Whiting Petroleum Corporation (NYSE:WLL) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers that slashed their full holdings in the second quarter. At the top of the heap, Renaissance Technologies sold off the largest investment of all the hedgies tracked by Insider Monkey, worth an estimated $42.6 million in stock, and Glenn Russell Dubin’s Highbridge Capital Management was right behind this move, as the fund said goodbye to about $8.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Whiting Petroleum Corporation (NYSE:WLL) but similarly valued. We will take a look at Visteon Corp (NASDAQ:VC), Southwestern Energy Company (NYSE:SWN), FBL Financial Group, Inc. (NYSE:FFG), and Cambrex Corporation (NYSE:CBM). This group of stocks’ market caps are closest to WLL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VC 17 281647 -4
SWN 18 256829 -6
FFG 7 12886 0
CBM 12 30487 -1
Average 13.5 145462 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $281 million in WLL’s case. Southwestern Energy Company (NYSE:SWN) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Whiting Petroleum Corporation (NYSE:WLL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WLL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WLL were disappointed as the stock returned -57% during the third 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 many of these stocks already outperformed the market in Q3.

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

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