Hedge Funds Are Nibbling On Callon Petroleum Company (CPE)

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 Callon Petroleum Company (NYSE:CPE) and determine whether hedge funds skillfully traded this stock.

Callon Petroleum Company (NYSE:CPE) has experienced an increase in enthusiasm from smart money recently. Callon Petroleum Company (NYSE:CPE) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. Our calculations also showed that CPE 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nick Thakore of Diametric Capital

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 real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 view the fresh hedge fund action regarding Callon Petroleum Company (NYSE:CPE).

How have hedgies been trading Callon Petroleum Company (NYSE:CPE)?

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in CPE 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.

Is CPE A Good Stock To Buy?

The largest stake in Callon Petroleum Company (NYSE:CPE) was held by Arrowstreet Capital, which reported holding $12.3 million worth of stock at the end of September. It was followed by Millennium Management with a $8.7 million position. Other investors bullish on the company included Paloma Partners, Citadel Investment Group, and Diametric Capital. In terms of the portfolio weights assigned to each position Diametric Capital allocated the biggest weight to Callon Petroleum Company (NYSE:CPE), around 0.34% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to CPE.

As industrywide interest jumped, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Callon Petroleum Company (NYSE:CPE). Arrowstreet Capital had $12.3 million invested in the company at the end of the quarter. Nick Thakore’s Diametric Capital also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, David Andre and Astro Teller’s Cerebellum Capital, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to Callon Petroleum Company (NYSE:CPE). We will take a look at Lithium Americas Corp. (NYSE:LAC), Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), Antares Pharma Inc (NASDAQ:ATRS), Quanex Building Products Corporation (NYSE:NX), DURECT Corporation (NASDAQ:DRRX), BeyondSpring, Inc. (NASDAQ:BYSI), and SI-BONE, Inc. (NASDAQ:SIBN). This group of stocks’ market caps resemble CPE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LAC 1 178 -2
BLX 3 32585 0
ATRS 20 19201 0
NX 14 47736 1
DRRX 5 61539 -4
BYSI 5 4478 4
SIBN 16 90217 -3
Average 9.1 36562 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $26 million in CPE’s case. Antares Pharma Inc (NASDAQ:ATRS) is the most popular stock in this table. On the other hand Lithium Americas Corp. (NYSE:LAC) is the least popular one with only 1 bullish hedge fund positions. Callon Petroleum Company (NYSE:CPE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CPE is 23.8. 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. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately CPE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CPE were disappointed as the stock returned -58.1% in Q3 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.

Follow Callon Petroleum Co (NYSE:CPE)

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