Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Centennial Resource Development, Inc. (NASDAQ:CDEV) changed recently.
Is Centennial Resource Development, Inc. (NASDAQ:CDEV) a buy right now? Money managers are in an optimistic mood. The number of bullish hedge fund bets advanced by 2 in recent months. Our calculations also showed that cdev isn’t among the 30 most popular stocks among hedge funds. CDEV was in 21 hedge funds’ portfolios at the end of the third quarter of 2018. There were 19 hedge funds in our database with CDEV holdings at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to check out the new hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).
How are hedge funds trading Centennial Resource Development, Inc. (NASDAQ:CDEV)?
Heading into the fourth quarter of 2018, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in CDEV heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, SailingStone Capital Partners was the largest shareholder of Centennial Resource Development, Inc. (NASDAQ:CDEV), with a stake worth $130.6 million reported as of the end of September. Trailing SailingStone Capital Partners was Millennium Management, which amassed a stake valued at $90.4 million. Kensico Capital, Alyeska Investment Group, and Encompass Capital Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, assembled the most outsized position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Alyeska Investment Group had $44.3 million invested in the company at the end of the quarter. Todd J. Kantor’s Encompass Capital Advisors also initiated a $25.8 million position during the quarter. The following funds were also among the new CDEV investors: Noam Gottesman’s GLG Partners, Ed Bosek’s BeaconLight Capital, and Robert Hockett’s Covalent Capital Partners.
Let’s also examine hedge fund activity in other stocks similar to Centennial Resource Development, Inc. (NASDAQ:CDEV). We will take a look at Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), CPFL Energia S.A. (NYSE:CPL), LivaNova PLC (NASDAQ:LIVN), and Owens Corning (NYSE:OC). This group of stocks’ market valuations are closest to CDEV’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $434 million. That figure was $419 million in CDEV’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 2 bullish hedge fund positions. Centennial Resource Development, Inc. (NASDAQ:CDEV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.