Here is What Hedge Funds Think About Extraction Oil & Gas, Inc. (XOG)

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Extraction Oil & Gas, Inc. (NASDAQ:XOG).

Extraction Oil & Gas, Inc. (NASDAQ:XOG) has experienced a decrease in hedge fund sentiment in recent months. Our calculations also showed that xog isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital

We’re going to go over the recent hedge fund action regarding Extraction Oil & Gas, Inc. (NASDAQ:XOG).

Hedge fund activity in Extraction Oil & Gas, Inc. (NASDAQ:XOG)

At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in XOG heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

No of Hedge Funds with XOG Positions

More specifically, Point72 Asset Management was the largest shareholder of Extraction Oil & Gas, Inc. (NASDAQ:XOG), with a stake worth $112.7 million reported as of the end of September. Trailing Point72 Asset Management was Luminus Management, which amassed a stake valued at $87.6 million. Canyon Capital Advisors, Beach Point Capital Management, and OZ Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Extraction Oil & Gas, Inc. (NASDAQ:XOG) has faced falling interest from the smart money, it’s easy to see that there exists a select few fund managers that decided to sell off their positions entirely heading into Q3. Intriguingly, George McCabe’s Portolan Capital Management said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $23.4 million in stock, and Steven Tananbaum’s GoldenTree Asset Management was right behind this move, as the fund dropped about $16 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Extraction Oil & Gas, Inc. (NASDAQ:XOG) but similarly valued. We will take a look at First Bancorp (NYSE:FBP), Lithia Motors Inc (NYSE:LAD), Pinnacle Entertainment, Inc (NASDAQ:PNK), and The Ensign Group, Inc. (NASDAQ:ENSG). This group of stocks’ market values are similar to XOG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBP 18 256853 2
LAD 19 436448 4
PNK 21 296270 1
ENSG 13 39020 1
Average 17.75 257148 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $289 million in XOG’s case. Pinnacle Entertainment, Inc (NYSE:PNK) is the most popular stock in this table. On the other hand The Ensign Group, Inc. (NASDAQ:ENSG) is the least popular one with only 13 bullish hedge fund positions. Extraction Oil & Gas, Inc. (NASDAQ:XOG) 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 PNK might be a better candidate to consider a long position.

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