Is Centennial Resource Development, Inc. (CDEV) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Centennial Resource Development, Inc. (NASDAQ:CDEV).

Is Centennial Resource Development, Inc. (NASDAQ:CDEV) the right investment to pursue these days? Investors who are in the know were betting on the stock. The number of bullish hedge fund positions inched up by 4 in recent months. Centennial Resource Development, Inc. (NASDAQ:CDEV) was in 23 hedge funds’ portfolios at the end of March. The all time high for this statistic is 29. Our calculations also showed that CDEV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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’ 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 S&P 500 ETFs by 115 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 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.

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a look at the key hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).

Do Hedge Funds Think CDEV Is A Good Stock To Buy Now?

At first quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CDEV over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Renaissance Technologies has a $25.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $23.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group and Michael Lowenstein’s Kensico Capital. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Centennial Resource Development, Inc. (NASDAQ:CDEV), around 1.15% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, dishing out 0.73 percent of its 13F equity portfolio to CDEV.

Consequently, key hedge funds were leading the bulls’ herd. Aequim Alternative Investments, managed by Franklin Parlamis, initiated the biggest position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Aequim Alternative Investments had $3.1 million invested in the company at the end of the quarter. Robert Henry Lynch’s Aristeia Capital also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Jonathan Soros’s JS Capital, Bruce Kovner’s Caxton Associates LP, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Centennial Resource Development, Inc. (NASDAQ:CDEV) but similarly valued. We will take a look at Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT), Atrion Corporation (NASDAQ:ATRI), Inogen Inc (NASDAQ:INGN), Kraton Corporation (NYSE:KRA), Redwood Trust, Inc. (NYSE:RWT), OFG Bancorp (NYSE:OFG), and Loral Space & Communications Inc (NASDAQ:LORL). This group of stocks’ market valuations resemble CDEV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PHAT 17 380269 3
ATRI 8 50464 0
INGN 12 38487 -9
KRA 20 140860 2
RWT 18 69547 -4
OFG 10 60051 2
LORL 14 432461 -3
Average 14.1 167448 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $119 million in CDEV’s case. Kraton Corporation (NYSE:KRA) is the most popular stock in this table. On the other hand Atrion Corporation (NASDAQ:ATRI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Centennial Resource Development, Inc. (NASDAQ:CDEV) is more popular among hedge funds. Our overall hedge fund sentiment score for CDEV is 82.8. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 23.8% in 2021 through July 16th but still managed to beat the market by 7.7 percentage points. Hedge funds were also right about betting on CDEV as the stock returned 31.2% since the end of March (through 7/16) 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.

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