Hedge Funds Are Selling Callon Petroleum Company (CPE)

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Callon Petroleum Company (NYSE:CPE) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Callon Petroleum Company (NYSE:CPE) the right investment to pursue these days? Money managers are turning less bullish. The number of long hedge fund positions shrunk by 2 lately. Our calculations also showed that CPE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CPE was in 27 hedge funds’ portfolios at the end of December. There were 29 hedge funds in our database with CPE positions at the end of the previous quarter.

Didric Cederholm Lion Point Capital

Didric Cederholm of Lion Point Capital

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the new hedge fund action encompassing Callon Petroleum Company (NYSE:CPE).

What have hedge funds been doing with Callon Petroleum Company (NYSE:CPE)?

At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in CPE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Callon Petroleum Company (NYSE:CPE). AQR Capital Management has a $56.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Didric Cederholm of Lion Point, with a $39.6 million position; the fund has 3.7% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Ken Fisher’s Fisher Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Clint Carlson’s Carlson Capital. In terms of the portfolio weights assigned to each position Lion Point allocated the biggest weight to Callon Petroleum Company (NYSE:CPE), around 3.68% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, designating 1.05 percent of its 13F equity portfolio to CPE.

Seeing as Callon Petroleum Company (NYSE:CPE) has faced bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers that slashed their positions entirely by the end of the third quarter. At the top of the heap, John Paulson’s Paulson & Co sold off the largest position of the 750 funds followed by Insider Monkey, comprising about $93.7 million in stock. Jonathan Barrett and Paul Segal’s fund, Luminus Management, also dumped its stock, about $45.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Callon Petroleum Company (NYSE:CPE). We will take a look at Wesco Aircraft Holdings Inc (NYSE:WAIR), Stratasys, Ltd. (NASDAQ:SSYS), Encore Capital Group, Inc. (NASDAQ:ECPG), and National Bank Holdings Corp (NYSE:NBHC). This group of stocks’ market valuations are similar to CPE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WAIR 18 166223 -7
SSYS 18 81813 4
ECPG 13 72952 1
NBHC 9 83778 -3
Average 14.5 101192 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $226 million in CPE’s case. Wesco Aircraft Holdings Inc (NYSE:WAIR) is the most popular stock in this table. On the other hand National Bank Holdings Corp (NYSE:NBHC) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Callon Petroleum Company (NYSE:CPE) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 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 -83% during the four months of 2020 (through May 1st) 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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