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Is Bonanza Creek Energy Inc (BCEI) A Good Stock To Buy?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Bonanza Creek Energy Inc (NYSE:BCEI) and determine whether hedge funds skillfully traded this stock.

Bonanza Creek Energy Inc (NYSE:BCEI) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that BCEI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 most profitable companies in the world to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the new hedge fund action regarding Bonanza Creek Energy Inc (NYSE:BCEI).

What does smart money think about Bonanza Creek Energy Inc (NYSE:BCEI)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BCEI over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Mangrove Partners held the most valuable stake in Bonanza Creek Energy Inc (NYSE:BCEI), which was worth $23.2 million at the end of the third quarter. On the second spot was Oaktree Capital Management which amassed $8.3 million worth of shares. Divisar Capital, Royce & Associates, and Arrowstreet Capital 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 Mangrove Partners allocated the biggest weight to Bonanza Creek Energy Inc (NYSE:BCEI), around 3.2% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, dishing out 1.56 percent of its 13F equity portfolio to BCEI.

Judging by the fact that Bonanza Creek Energy Inc (NYSE:BCEI) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who were dropping their full holdings heading into Q4. It’s worth mentioning that Paul Reeder and Edward Shapiro’s PAR Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $14 million in stock. Don Morgan’s fund, Brigade Capital, also said goodbye to its stock, about $6.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Bonanza Creek Energy Inc (NYSE:BCEI) but similarly valued. We will take a look at Fulgent Genetics, Inc. (NASDAQ:FLGT), CIRCOR International, Inc. (NYSE:CIR), Sutro Biopharma, Inc. (NASDAQ:STRO), and EZCORP Inc (NASDAQ:EZPW). This group of stocks’ market values match BCEI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLGT 9 14912 -2
CIR 12 41990 2
STRO 13 49596 -1
EZPW 15 49680 -6
Average 12.25 39045 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $48 million in BCEI’s case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand Fulgent Genetics, Inc. (NASDAQ:FLGT) is the least popular one with only 9 bullish hedge fund positions. Bonanza Creek Energy Inc (NYSE:BCEI) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on BCEI as the stock returned 37.1% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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