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Hedge Funds Done Selling Chaparral Energy, Inc. (CHAP)?

In this article we will take a look at whether hedge funds think Chaparral Energy, Inc. (NYSE:CHAP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Hedge fund interest in Chaparral Energy, Inc. (NYSE:CHAP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as HyreCar Inc. (NASDAQ:HYRE), Stein Mart, Inc. (NASDAQ:SMRT), and Altisource Asset Management Corp (NYSE:AAMC) to gather more data points. Our calculations also showed that CHAP 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AVENUE 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 trades like this one. 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 go over the key hedge fund action surrounding Chaparral Energy, Inc. (NYSE:CHAP).

Hedge fund activity in Chaparral Energy, Inc. (NYSE:CHAP)

At the end of the first quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in CHAP a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is CHAP A Good Stock To Buy?

More specifically, Strategic Value Partners was the largest shareholder of Chaparral Energy, Inc. (NYSE:CHAP), with a stake worth $6.5 million reported as of the end of September. Trailing Strategic Value Partners was Contrarian Capital, which amassed a stake valued at $1.9 million. Paloma Partners, Avenue Capital, and Fir Tree were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Strategic Value Partners allocated the biggest weight to Chaparral Energy, Inc. (NYSE:CHAP), around 2.06% of its 13F portfolio. Contrarian Capital is also relatively very bullish on the stock, dishing out 1.01 percent of its 13F equity portfolio to CHAP.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Venor Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Chaparral Energy, Inc. (NYSE:CHAP) but similarly valued. These stocks are HyreCar Inc. (NASDAQ:HYRE), Stein Mart, Inc. (NASDAQ:SMRT), Altisource Asset Management Corp (NYSE:AAMC), and Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO). This group of stocks’ market caps are similar to CHAP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HYRE 5 5076 -1
SMRT 3 249 -1
AAMC 1 657 0
ARPO 3 3113 1
Average 3 2274 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $11 million in CHAP’s case. HyreCar Inc. (NASDAQ:HYRE) is the most popular stock in this table. On the other hand Altisource Asset Management Corp (NYSE:AAMC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Chaparral Energy, Inc. (NYSE:CHAP) 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on CHAP as the stock returned 86.8% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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