Is Concho Resources Inc. (CXO) A Good Stock To Buy Right Now?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge funds have been producing disappointing net returns in recent years, however that was partly due to the poor performance of small-cap stocks in general. Well, small-cap stocks finally turned the corner and have been beating the large-cap stocks by more than 10 percentage points over the last 5 months.This means the relevancy of hedge funds’ public filings became inarguable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Concho Resources Inc. (NYSE:CXO).

Is Concho Resources Inc. (NYSE:CXO) ready to rally soon? Unfortunately investors who are in the know are selling. The number of bullish hedge fund positions were cut by 4 lately. CXO was in 34 hedge funds’ portfolios at the end of the third quarter of 2016. There were 38 hedge funds in our database with CXO holdings at the end of the previous quarter. This may not be a negative signal if CXO is still more popular than similarly valued companies. At the end of this article we will also compare CXO to other stocks including Shinhan Financial Group Co., Ltd. (ADR) (NYSE:SHG), POSCO (ADR) (NYSE:PKX), and Noble Energy, Inc. (NYSE:NBL) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, we’re going to take a look at the recent action regarding Concho Resources Inc. (NYSE:CXO).

Hedge fund activity in Concho Resources Inc. (NYSE:CXO)

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 11% from the previous quarter. This is also the lowest level of popularity over the last 5 quarters as the graph below displays. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Point State Capital, managed by Zach Schreiber, holds the largest position in Concho Resources Inc. (NYSE:CXO). The fund reportedly has a $124.6 million position in the stock, comprising 1.3% of its 13F portfolio. Coming in second is Passport Capital, led by John Burbank, holding a $113.9 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Stuart J. Zimmer’s Zimmer Partners, John Overdeck and David Siegel’s Two Sigma Advisors and Clint Carlson’s Carlson Capital.

Judging by the fact that Concho Resources Inc. (NYSE:CXO) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers who were dropping their full holdings by the end of the third quarter. At the top of the heap, Todd J. Kantor’s Encompass Capital Advisors sold off the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $17 million in stock. Wayne Cooperman’s fund, Cobalt Capital Management, also dropped its bet, about $15.1 million worth of CXO shares. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Concho Resources Inc. (NYSE:CXO) but similarly valued. These stocks are Shinhan Financial (NYSE:SHG), POSCO (NYSE:PKX), Noble Energy (NYSE:NBL), and Ctrip.com (NASDAQ:CTRP). This group of stocks’ market caps resemble CXO’s market cap.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $972 million. That figure was $714 million in CXO’s case. Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (ADR) (NYSE:SHG) is the least popular one with only 7 bullish hedge fund positions. Concho Resources Inc. (NYSE:CXO) 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. In this regard CTRP might be a better candidate to consider a long position.

Disclosure: none.