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Is California Resources Corporation (CRC) Going To Burn These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like California Resources Corporation (NYSE:CRC).

California Resources Corporation (NYSE:CRC) investors should be aware of an increase in support from the world’s most elite money managers lately. Our calculations also showed that CRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the key hedge fund action surrounding California Resources Corporation (NYSE:CRC).

What does smart money think about California Resources Corporation (NYSE:CRC)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in CRC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Cyrus Capital Partners was the largest shareholder of California Resources Corporation (NYSE:CRC), with a stake worth $20.8 million reported as of the end of September. Trailing Cyrus Capital Partners was Encompass Capital Advisors, which amassed a stake valued at $16 million. Masters Capital Management, Citadel Investment Group, and Millennium Management 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 Elm Ridge Capital allocated the biggest weight to California Resources Corporation (NYSE:CRC), around 8.27% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, setting aside 4.13 percent of its 13F equity portfolio to CRC.

As one would reasonably expect, some big names were breaking ground themselves. Encompass Capital Advisors, managed by Todd J. Kantor, created the most outsized position in California Resources Corporation (NYSE:CRC). Encompass Capital Advisors had $16 million invested in the company at the end of the quarter. Sculptor Capital also made a $1.8 million investment in the stock during the quarter. The other funds with brand new CRC positions are James Thomas Berylson’s Berylson Capital Partners, Matthew Hulsizer’s PEAK6 Capital Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as California Resources Corporation (NYSE:CRC) but similarly valued. We will take a look at GameStop Corp. (NYSE:GME), UroGen Pharma Ltd. (NASDAQ:URGN), Retrophin Inc (NASDAQ:RTRX), and Viking Therapeutics, Inc. (NASDAQ:VKTX). This group of stocks’ market values match CRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GME 20 44116 -7
URGN 10 77472 -2
RTRX 18 223901 -1
VKTX 15 35723 -2
Average 15.75 95303 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $105 million in CRC’s case. GameStop Corp. (NYSE:GME) is the most popular stock in this table. On the other hand UroGen Pharma Ltd. (NASDAQ:URGN) is the least popular one with only 10 bullish hedge fund positions. California Resources Corporation (NYSE:CRC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CRC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CRC were disappointed as the stock returned -35.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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