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Hedge Funds Were Selling Marathon Oil Corporation (MRO) Before Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Marathon Oil Corporation (NYSE:MRO).

Marathon Oil Corporation (NYSE:MRO) has seen a decrease in hedge fund interest recently. MRO was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 37 hedge funds in our database with MRO holdings at the end of the previous quarter. Our calculations also showed that MRO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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.

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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the key hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).

How have hedgies been trading Marathon Oil Corporation (NYSE:MRO)?

At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRO 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 MRO A Good Stock To Buy?

Among these funds, Point72 Asset Management held the most valuable stake in Marathon Oil Corporation (NYSE:MRO), which was worth $86.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $77.3 million worth of shares. Encompass Capital Advisors, D E Shaw, and Two Sigma Advisors 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 SIR Capital Management allocated the biggest weight to Marathon Oil Corporation (NYSE:MRO), around 6.03% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 4.9 percent of its 13F equity portfolio to MRO.

Seeing as Marathon Oil Corporation (NYSE:MRO) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest stake of the 750 funds watched by Insider Monkey, valued at close to $16.7 million in call options, and Matt Smith’s Deep Basin Capital was right behind this move, as the fund dumped about $12.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 7 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marathon Oil Corporation (NYSE:MRO) but similarly valued. We will take a look at Rollins, Inc. (NYSE:ROL), Fair Isaac Corporation (NYSE:FICO), Aramark (NYSE:ARMK), and PerkinElmer, Inc. (NYSE:PKI). This group of stocks’ market caps are similar to MRO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROL 34 363525 5
FICO 45 1456753 1
ARMK 36 2127604 1
PKI 20 841222 -5
Average 33.75 1197276 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1197 million. That figure was $449 million in MRO’s case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand PerkinElmer, Inc. (NYSE:PKI) is the least popular one with only 20 bullish hedge fund positions. Marathon Oil Corporation (NYSE:MRO) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately MRO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MRO investors were disappointed as the stock returned -70.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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

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