Is Laredo Petroleum Inc (LPI) Going to Burn These Hedge Funds?

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Laredo Petroleum Inc (NYSE:LPI).

Laredo Petroleum Inc (NYSE:LPI) shareholders have witnessed an increase in hedge fund sentiment in recent months. Our calculations also showed that LPI 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.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action surrounding Laredo Petroleum Inc (NYSE:LPI).

Hedge fund activity in Laredo Petroleum Inc (NYSE:LPI)

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the second quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in LPI 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.

Is LPI A Good Stock To Buy?

Among these funds, SailingStone Capital Partners held the most valuable stake in Laredo Petroleum Inc (NYSE:LPI), which was worth $40.8 million at the end of the third quarter. On the second spot was Luminus Management which amassed $27.9 million worth of shares. Citadel Investment Group, Millennium Management, and Renaissance Technologies 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 SailingStone Capital Partners allocated the biggest weight to Laredo Petroleum Inc (NYSE:LPI), around 10.37% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, designating 0.81 percent of its 13F equity portfolio to LPI.

As industrywide interest jumped, specific money managers were breaking ground themselves. Royce & Associates, managed by Chuck Royce, assembled the biggest position in Laredo Petroleum Inc (NYSE:LPI). Royce & Associates had $8.3 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also made a $0.4 million investment in the stock during the quarter. The other funds with brand new LPI positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Bruce Kovner’s Caxton Associates, and David E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to Laredo Petroleum Inc (NYSE:LPI). We will take a look at First Defiance Financial (NASDAQ:FDEF), Caesarstone Sdot-Yam Ltd (NASDAQ:CSTE), City Office REIT Inc (NYSE:CIO), and Flushing Financial Corporation (NASDAQ:FFIC). All of these stocks’ market caps are similar to LPI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FDEF 9 40050 0
CSTE 9 27696 0
CIO 11 73563 5
FFIC 12 43530 4
Average 10.25 46210 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $130 million in LPI’s case. Flushing Financial Corporation (NASDAQ:FFIC) is the most popular stock in this table. On the other hand First Defiance Financial (NASDAQ:FDEF) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Laredo Petroleum Inc (NYSE:LPI) is more popular among hedge funds. 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 LPI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LPI were disappointed as the stock returned -10.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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