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Hedge Funds Aren’t Done Selling ConocoPhillips (COP)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of ConocoPhillips (NYSE:COP) based on that data and determine whether they were really smart about the stock.

Is ConocoPhillips (NYSE:COP) worth your attention right now? Hedge funds were turning less bullish. The number of bullish hedge fund positions retreated by 10 in recent months. ConocoPhillips (NYSE:COP) was in 44 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 70. Our calculations also showed that COP 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). There were 54 hedge funds in our database with COP holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are seen as unimportant, outdated financial vehicles of years past. While there are over 8000 funds in operation at present, We hone in on the bigwigs of this club, around 850 funds. These money managers preside over the majority of the hedge fund industry’s total capital, and by observing their matchless investments, Insider Monkey has discovered several investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s take a peek at the fresh hedge fund action regarding ConocoPhillips (NYSE:COP).

How are hedge funds trading ConocoPhillips (NYSE:COP)?

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the first quarter of 2020. By comparison, 57 hedge funds held shares or bullish call options in COP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is COP A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the largest position in ConocoPhillips (NYSE:COP). D E Shaw has a $227.9 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Ken Fisher of Fisher Asset Management, with a $201.8 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Donald Yacktman’s Yacktman Asset Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to ConocoPhillips (NYSE:COP), around 7.17% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, dishing out 3.5 percent of its 13F equity portfolio to COP.

Because ConocoPhillips (NYSE:COP) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that elected to cut their full holdings in the second quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the largest stake of the 750 funds followed by Insider Monkey, valued at about $56.8 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund cut about $31 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 10 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ConocoPhillips (NYSE:COP) but similarly valued. We will take a look at Norfolk Southern Corp. (NYSE:NSC), Waste Management, Inc. (NYSE:WM), PNC Financial Services Group Inc. (NYSE:PNC), Aon plc (NYSE:AON), Atlassian Corporation Plc (NASDAQ:TEAM), Honda Motor Co Ltd (NYSE:HMC), and Workday Inc (NYSE:WDAY). All of these stocks’ market caps are similar to COP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NSC 47 867199 -4
WM 39 2844869 -1
PNC 52 1108094 12
AON 57 4755205 10
TEAM 55 2872691 -4
HMC 10 296833 2
WDAY 73 3444523 15
Average 47.6 2312773 4.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.6 hedge funds with bullish positions and the average amount invested in these stocks was $2313 million. That figure was $913 million in COP’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 bullish hedge fund positions. ConocoPhillips (NYSE:COP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COP is 40.8. 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 negative signal and 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately COP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); COP investors were disappointed as the stock returned -8.9% since Q2 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.

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