How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Marathon Oil Corporation (NYSE:MRO) and determine whether hedge funds had an edge regarding this stock.
Marathon Oil Corporation (NYSE:MRO) shareholders have witnessed an increase in enthusiasm from smart money lately. Marathon Oil Corporation (NYSE:MRO) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. There were 24 hedge funds in our database with MRO positions at the end of the first quarter. Our calculations also showed that MRO 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.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s check out the key hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).
Hedge fund activity in Marathon Oil Corporation (NYSE:MRO)
At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRO over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Marathon Oil Corporation (NYSE:MRO), with a stake worth $84.4 million reported as of the end of September. Trailing Arrowstreet Capital was Fisher Asset Management, which amassed a stake valued at $41.4 million. Citadel Investment Group, Renaissance Technologies, 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 Deep Basin Capital allocated the biggest weight to Marathon Oil Corporation (NYSE:MRO), around 1.33% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.2 percent of its 13F equity portfolio to MRO.
Now, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Marathon Oil Corporation (NYSE:MRO). Balyasny Asset Management had $22.4 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also initiated a $2.1 million position during the quarter. The other funds with brand new MRO positions are Joel Greenblatt’s Gotham Asset Management, Greg Poole’s Echo Street Capital Management, and Ran Pang’s Quantamental Technologies.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Marathon Oil Corporation (NYSE:MRO) but similarly valued. These stocks are Jabil Inc. (NYSE:JBL), Woodward Inc (NASDAQ:WWD), Vir Biotechnology, Inc. (NASDAQ:VIR), Gerdau SA (NYSE:GGB), Shell Midstream Partners LP (NYSE:SHLX), American Campus Communities, Inc. (NYSE:ACC), and 51job, Inc. (NASDAQ:JOBS). All of these stocks’ market caps match MRO’s market cap.
|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 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $314 million in MRO’s case. Jabil Inc. (NYSE:JBL) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 6 bullish hedge fund positions. Marathon Oil Corporation (NYSE:MRO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRO is 67. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately MRO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MRO were disappointed as the stock returned -32.4% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Marathon Oil Corp (NYSE:MRO)
Follow Marathon Oil Corp (NYSE:MRO)
Disclosure: None. This article was originally published at Insider Monkey.