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

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Extraction Oil & Gas, Inc. (NASDAQ:XOG) from the perspective of those elite funds.

Extraction Oil & Gas, Inc. (NASDAQ:XOG) has seen an increase in support from the world’s most elite money managers of late. XOG was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 20 hedge funds in our database with XOG positions at the end of the previous quarter. Our calculations also showed that XOG isn’t among the 30 most popular stocks among hedge funds.

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 32 percentage points since May 2014 through March 12, 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.

Josh Friedman Canyon Capital

Let’s view the recent hedge fund action regarding Extraction Oil & Gas, Inc. (NASDAQ:XOG).

How are hedge funds trading Extraction Oil & Gas, Inc. (NASDAQ:XOG)?

At Q4’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards XOG over the last 14 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

XOG_may2019

More specifically, Luminus Management was the largest shareholder of Extraction Oil & Gas, Inc. (NASDAQ:XOG), with a stake worth $48 million reported as of the end of December. Trailing Luminus Management was Point72 Asset Management, which amassed a stake valued at $26.9 million. Canyon Capital Advisors, Beach Point Capital Management, and Maverick Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, specific money managers have jumped into Extraction Oil & Gas, Inc. (NASDAQ:XOG) headfirst. Maverick Capital, managed by Lee Ainslie, initiated the most outsized position in Extraction Oil & Gas, Inc. (NASDAQ:XOG). Maverick Capital had $5.6 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also made a $4.4 million investment in the stock during the quarter. The following funds were also among the new XOG investors: Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, Michael Price’s MFP Investors, and Steve Pattyn’s Yaupon Capital.

Let’s check out hedge fund activity in other stocks similar to Extraction Oil & Gas, Inc. (NASDAQ:XOG). We will take a look at NV5 Holdings Inc (NASDAQ:NVEE), Irsa Inversiones y Rprsntcins SA (NYSE:IRS), Rite Aid Corporation (NYSE:RAD), and Vericel Corp (NASDAQ:VCEL). All of these stocks’ market caps are closest to XOG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVEE 13 34100 0
IRS 7 59154 -3
RAD 13 32565 -5
VCEL 19 213562 -1
Average 13 84845 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $122 million in XOG’s case. Vericel Corp (NASDAQ:VCEL) is the most popular stock in this table. On the other hand Irsa Inversiones y Rprsntcins SA (NYSE:IRS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Extraction Oil & Gas, Inc. (NASDAQ:XOG) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on XOG as the stock returned 30.3% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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