How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding HighPoint Resources Corporation (NYSE:HPR).
Is HPR a good stock to buy now? HighPoint Resources Corporation (NYSE:HPR) has experienced a decrease in enthusiasm from smart money recently. HighPoint Resources Corporation (NYSE:HPR) was in 8 hedge funds’ portfolios at the end of September. The all time high for this statistics is 19. There were 15 hedge funds in our database with HPR holdings at the end of June. Our calculations also showed that HPR isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. With all of this in mind let’s take a look at the key hedge fund action encompassing HighPoint Resources Corporation (NYSE:HPR).
What have hedge funds been doing with HighPoint Resources Corporation (NYSE:HPR)?
Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -47% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HPR over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in HighPoint Resources Corporation (NYSE:HPR), which was worth $1.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $0.7 million worth of shares. Millennium Management, Huber Capital Management, and Nokomis 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 Nokomis Capital allocated the biggest weight to HighPoint Resources Corporation (NYSE:HPR), around 0.08% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to HPR.
Judging by the fact that HighPoint Resources Corporation (NYSE:HPR) has experienced a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedgies who were dropping their full holdings heading into Q4. Interestingly, Steven Baughman’s Divisar Capital cut the largest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $0.4 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 7 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to HighPoint Resources Corporation (NYSE:HPR). We will take a look at Income Opportunity Realty Investors, Inc. (NYSE:IOR), Streamline Health Solutions Inc. (NASDAQ:STRM), Natural Alternatives International, Inc. (NASDAQ:NAII), Hudson Technologies, Inc. (NASDAQ:HDSN), Pathfinder Bancorp, Inc. (NASDAQ:PBHC), Lee Enterprises, Incorporated (NYSE:LEE), and Medley Capital Corp (NYSE:MCC). This group of stocks’ market values are closest to HPR’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.1 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $3 million in HPR’s case. Lee Enterprises, Incorporated (NYSE:LEE) is the most popular stock in this table. On the other hand Income Opportunity Realty Investors, Inc. (NYSE:IOR) is the least popular one with only 1 bullish hedge fund positions. HighPoint Resources Corporation (NYSE:HPR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HPR is 54.4. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately HPR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HPR were disappointed as the stock returned -13% since the end of September (through 12/2) 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.