Hedge Funds Are Selling Contango Oil & Gas Company (MCF)

In this article you are going to find out whether hedge funds think Contango Oil & Gas Company (NYSE:MCF) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Contango Oil & Gas Company (NYSE:MCF) an exceptional investment right now? Prominent investors are turning less bullish. The number of long hedge fund bets were cut by 2 recently. Our calculations also showed that MCF isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the new hedge fund action surrounding Contango Oil & Gas Company (NYSE:MCF).

What does smart money think about Contango Oil & Gas Company (NYSE:MCF)?

At Q1’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCF over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MCF A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Cannell Capital, managed by J. Carlo Cannell, holds the biggest position in Contango Oil & Gas Company (NYSE:MCF). Cannell Capital has a $2.4 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding a $1.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass Michael Gelband’s ExodusPoint Capital, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Contango Oil & Gas Company (NYSE:MCF), around 1.02% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to MCF.

Because Contango Oil & Gas Company (NYSE:MCF) has faced declining sentiment from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their entire stakes by the end of the first quarter. At the top of the heap, Sander Gerber’s Hudson Bay Capital Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $0.7 million in stock. David Nguyen and Nancy Oh’s fund, One68 Global Capital, also dropped its stock, about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Contango Oil & Gas Company (NYSE:MCF). These stocks are Universal Technical Institute, Inc. (NYSE:UTI), BioLife Solutions, Inc. (NASDAQ:BLFS), Titan Machinery Inc. (NASDAQ:TITN), and Radiant Logistics, Inc. (NYSE:RLGT). This group of stocks’ market valuations match MCF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UTI 15 52223 4
BLFS 9 43065 -4
TITN 8 10682 1
RLGT 11 7323 -2
Average 10.75 28323 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $4 million in MCF’s case. Universal Technical Institute, Inc. (NYSE:UTI) is the most popular stock in this table. On the other hand Titan Machinery Inc. (NASDAQ:TITN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Contango Oil & Gas Company (NYSE:MCF) is even less popular than TITN. Hedge funds clearly dropped the ball on MCF as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on MCF as the stock returned 154% so far in the second quarter and outperformed the market by an even larger margin.

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