Here is What Hedge Funds Think About Centennial Resource Development, Inc. (CDEV)

Is Centennial Resource Development, Inc. (NASDAQ:CDEV) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Centennial Resource Development, Inc. (NASDAQ:CDEV) a buy, sell, or hold? Money managers are turning bullish. The number of bullish hedge fund bets advanced by 1 in recent months. Our calculations also showed that cdev isn’t among the 30 most popular stocks among hedge funds. CDEV was in 15 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with CDEV positions at the end of the previous quarter.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

We’re going to go over the key hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).

Hedge fund activity in Centennial Resource Development, Inc. (NASDAQ:CDEV)

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in CDEV 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.

No of Hedge Funds with CDEV Positions

Among these funds, SailingStone Capital Partners held the most valuable stake in Centennial Resource Development, Inc. (NASDAQ:CDEV), which was worth $48.5 million at the end of the first quarter. On the second spot was Kensico Capital which amassed $35 million worth of shares. Moreover, Citadel Investment Group, Two Sigma Advisors, and Prescott Group Capital Management were also bullish on Centennial Resource Development, Inc. (NASDAQ:CDEV), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key hedge funds were breaking ground themselves. Centenus Global Management, managed by Sara Nainzadeh, created the largest position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Centenus Global Management had $2.4 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital, Jeffrey Talpins’s Element Capital Management, and David Harding’s Winton Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Centennial Resource Development, Inc. (NASDAQ:CDEV). These stocks are Zogenix, Inc. (NASDAQ:ZGNX), Portola Pharmaceuticals Inc (NASDAQ:PTLA), Gol Linhas Aereas Inteligentes SA (NYSE:GOL), and The Geo Group, Inc. (NYSE:GEO). This group of stocks’ market valuations are similar to CDEV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZGNX 37 1112306 2
PTLA 20 402952 6
GOL 16 193692 7
GEO 18 117240 0
Average 22.75 456548 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $127 million in CDEV’s case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Gol Linhas Aereas Inteligentes SA (NYSE:GOL) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Centennial Resource Development, Inc. (NASDAQ:CDEV) is even less popular than GOL. Hedge funds dodged a bullet by taking a bearish stance towards CDEV. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CDEV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CDEV investors were disappointed as the stock returned -20.6% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.

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