Hedge Funds Aren’t Crazy About Oasis Petroleum Inc. (OAS) Anymore

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Oasis Petroleum Inc. (NYSE:OAS).

Is Oasis Petroleum Inc. (NYSE:OAS) ready to rally soon? Hedge funds are becoming less confident. The number of long hedge fund positions were cut by 6 in recent months. Our calculations also showed that OAS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action surrounding Oasis Petroleum Inc. (NYSE:OAS).

Hedge fund activity in Oasis Petroleum Inc. (NYSE:OAS)

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OAS over the last 17 quarters. 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 OAS A Good Stock To Buy?

The largest stake in Oasis Petroleum Inc. (NYSE:OAS) was held by Citadel Investment Group, which reported holding $39.9 million worth of stock at the end of September. It was followed by Millennium Management with a $39.4 million position. Other investors bullish on the company included Luminus Management, AQR Capital Management, and GMT Capital. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Oasis Petroleum Inc. (NYSE:OAS), around 0.92% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, dishing out 0.74 percent of its 13F equity portfolio to OAS.

Because Oasis Petroleum Inc. (NYSE:OAS) has witnessed declining sentiment from the smart money, it’s easy to see that there were a few funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Perella Weinberg Partners cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $23.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $20.4 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Oasis Petroleum Inc. (NYSE:OAS). We will take a look at Ra Pharmaceuticals, Inc. (NASDAQ:RARX), Career Education Corp. (NASDAQ:CECO), Tortoise Energy Infrastructure Corporation (NYSE:TYG), and Theravance Biopharma Inc (NASDAQ:TBPH). This group of stocks’ market values resemble OAS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RARX 21 320734 3
CECO 22 199757 0
TYG 1 764 0
TBPH 6 427868 -2
Average 12.5 237281 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $161 million in OAS’s case. Career Education Corp. (NASDAQ:CECO) is the most popular stock in this table. On the other hand Tortoise Energy Infrastructure Corporation (NYSE:TYG) is the least popular one with only 1 bullish hedge fund positions. Oasis Petroleum Inc. (NYSE:OAS) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OAS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OAS were disappointed as the stock returned -32.4% during the fourth quarter (through the end of November) 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 so far this year.

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