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Is CONSOL Energy Inc. (CNX) Going to Burn These Hedge Funds?

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards CNX Resources Corporation (NYSE:CNX).

Is CNX Resources Corporation (NYSE:CNX) an attractive investment today? Prominent investors are in a pessimistic mood. The number of long hedge fund bets fell by 2 recently. Our calculations also showed that CNX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CNX was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with CNX positions at the end of the previous quarter.

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 S&P 500 ETFs by more than 41 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. 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.

Mason Hawkins of Southeastern Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the key hedge fund action encompassing CNX Resources Corporation (NYSE:CNX).

How have hedgies been trading CNX Resources Corporation (NYSE:CNX)?

Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CNX over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Southeastern Asset Management, managed by Mason Hawkins, holds the number one position in CNX Resources Corporation (NYSE:CNX). Southeastern Asset Management has a $445 million position in the stock, comprising 7.4% of its 13F portfolio. Sitting at the No. 2 spot is Greenlight Capital, managed by David Einhorn, which holds a $52.1 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Donald Sussman’s Paloma Partners. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to CNX Resources Corporation (NYSE:CNX), around 7.42% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, dishing out 3.86 percent of its 13F equity portfolio to CNX.

Judging by the fact that CNX Resources Corporation (NYSE:CNX) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who sold off their full holdings heading into Q4. Interestingly, Ray Dalio’s Bridgewater Associates dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $9.8 million in call options, and Sara Nainzadeh’s Centenus Global Management was right behind this move, as the fund sold off about $1.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to CNX Resources Corporation (NYSE:CNX). We will take a look at Fanhua Inc. (NASDAQ:FANH), PRA Group, Inc. (NASDAQ:PRAA), Rush Enterprises, Inc. (NASDAQ:RUSHB), and Berkshire Hills Bancorp, Inc. (NYSE:BHLB). This group of stocks’ market values match CNX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FANH 7 12505 -1
PRAA 12 49091 1
RUSHB 4 41101 1
BHLB 9 41712 -3
Average 8 36102 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $585 million in CNX’s case. PRA Group, Inc. (NASDAQ:PRAA) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks CNX Resources Corporation (NYSE:CNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still managed to beat the market by 4.2 percentage points. Hedge funds were also right about betting on CNX, though not to the same extent, as the stock returned -15.6% in 2020 (through April 6th) and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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