Hedge Funds Have Never Been This Bullish On ChampionX Corporation (CHX)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded ChampionX Corporation (NYSE:CHX) and determine whether the smart money was really smart about this stock.

Is ChampionX Corporation (NYSE:CHX) worth your attention right now? Prominent investors were becoming more confident. The number of long hedge fund positions rose by 11 recently. ChampionX Corporation (NYSE:CHX) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CHX 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).

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 56 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.

Jeffrey Gates of Gates Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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 we’re going to take a look at the recent hedge fund action surrounding ChampionX Corporation (NYSE:CHX).

How are hedge funds trading ChampionX Corporation (NYSE:CHX)?

At second quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 58% from the first quarter of 2020. By comparison, 15 hedge funds held shares or bullish call options in CHX 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.

The largest stake in ChampionX Corporation (NYSE:CHX) was held by Gates Capital Management, which reported holding $64.4 million worth of stock at the end of September. It was followed by D E Shaw with a $44.7 million position. Other investors bullish on the company included Citadel Investment Group, Holocene Advisors, and Encompass Capital Advisors. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to ChampionX Corporation (NYSE:CHX), around 4.32% of its 13F portfolio. Lafitte Capital Management is also relatively very bullish on the stock, designating 3.86 percent of its 13F equity portfolio to CHX.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Gates Capital Management, managed by Jeffrey Gates, initiated the largest position in ChampionX Corporation (NYSE:CHX). Gates Capital Management had $64.4 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $34.9 million investment in the stock during the quarter. The following funds were also among the new CHX investors: Todd J. Kantor’s Encompass Capital Advisors, David Paradice’s Paradice Investment Management, and Michael A. Price and Amos Meron’s Empyrean Capital Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ChampionX Corporation (NYSE:CHX) but similarly valued. We will take a look at First Interstate Bancsystem Inc (NASDAQ:FIBK), Uniqure NV (NASDAQ:QURE), Barnes Group Inc. (NYSE:B), Extended Stay America Inc (NASDAQ:STAY), Nu Skin Enterprises, Inc. (NYSE:NUS), PJT Partners Inc (NYSE:PJT), and Spectrum Brands Holdings, Inc. (NYSE:SPB). This group of stocks’ market valuations resemble CHX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIBK 12 20747 5
QURE 49 595039 5
B 19 39170 8
STAY 30 353720 12
NUS 25 240249 7
PJT 21 105078 -1
SPB 26 249356 2
Average 26 229051 5.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $452 million in CHX’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand First Interstate Bancsystem Inc (NASDAQ:FIBK) is the least popular one with only 12 bullish hedge fund positions. ChampionX Corporation (NYSE:CHX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHX is 64.3. 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 positive signal but 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately CHX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CHX were disappointed as the stock returned -7.6% during the same time period 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 many of these stocks already outperformed the market so far this year.

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