Is SM A Good Stock To Buy Now?

In this article you are going to find out whether hedge funds think SM Energy Company (NYSE:SM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is SM a good stock to buy now? Investors who are in the know were taking a bearish view. The number of bullish hedge fund bets were cut by 3 in recent months. SM Energy Company (NYSE:SM) was in 15 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 32. Our calculations also showed that SM 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Keeping this in mind let’s take a gander at the fresh hedge fund action encompassing SM Energy Company (NYSE:SM).

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

At third quarter’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SM over the last 21 quarters. With hedgies’ 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).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Maple Rock Capital, managed by Len Kipp and Xavier Majic, holds the largest position in SM Energy Company (NYSE:SM). Maple Rock Capital has a $10.4 million position in the stock, comprising 1.9% of its 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $6.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism encompass Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Maple Rock Capital allocated the biggest weight to SM Energy Company (NYSE:SM), around 1.9% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to SM.

Judging by the fact that SM Energy Company (NYSE:SM) has experienced a decline in interest from the smart money, logic holds that there exists a select few money managers that decided to sell off their positions entirely by the end of the third quarter. Intriguingly, Donald Sussman’s Paloma Partners dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $8.1 million in stock. Jonathan Soros’s fund, JS Capital, also said goodbye to its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SM Energy Company (NYSE:SM) but similarly valued. We will take a look at Rocky Brands, Inc. (NASDAQ:RCKY), SuRo Capital Corp. (NASDAQ:SSSS), Spok Holdings Inc (NASDAQ:SPOK), Exfo Inc (NASDAQ:EXFO), ACNB Corporation (NASDAQ:ACNB), Avenue Therapeutics, Inc. (NASDAQ:ATXI), and Checkpoint Therapeutics, Inc. (NASDAQ:CKPT). This group of stocks’ market caps are closest to SM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RCKY 8 13590 1
SSSS 8 8762 2
SPOK 14 20602 2
EXFO 1 3274 0
ACNB 1 1084 0
ATXI 2 11486 0
CKPT 3 3104 0
Average 5.3 8843 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.3 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $30 million in SM’s case. Spok Holdings Inc (NASDAQ:SPOK) is the most popular stock in this table. On the other hand Exfo Inc (NASDAQ:EXFO) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks SM Energy Company (NYSE:SM) is more popular among hedge funds. Our overall hedge fund sentiment score for SM is 66.1. 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 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 returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on SM as the stock returned 278.7% since the end of September (through 12/14) 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.

Follow Sm Energy Co (NYSE:SM)

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