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Marathon Oil Corporation (MRO) vs. Hedge Fund Favorites in 2019

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Marathon Oil Corporation (NYSE:MRO).

Is Marathon Oil Corporation (NYSE:MRO) going to take off soon? Prominent investors are in a bullish mood. The number of bullish hedge fund positions advanced by 3 recently. Our calculations also showed that MRO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). MRO was in 35 hedge funds’ portfolios at the end of the third quarter of 2019. There were 32 hedge funds in our database with MRO holdings at the end of the previous quarter.

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’ 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 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 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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a glance at the fresh hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).

What have hedge funds been doing with Marathon Oil Corporation (NYSE:MRO)?

At Q3’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the second quarter of 2019. By comparison, 39 hedge funds held shares or bullish call options in MRO a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is MRO A Good Stock To Buy?

The largest stake in Marathon Oil Corporation (NYSE:MRO) was held by D E Shaw, which reported holding $82.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $67.6 million position. Other investors bullish on the company included Encompass Capital Advisors, AQR Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Marathon Oil Corporation (NYSE:MRO), around 2.62% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, setting aside 1.65 percent of its 13F equity portfolio to MRO.

Now, some big names have jumped into Marathon Oil Corporation (NYSE:MRO) headfirst. Deep Basin Capital, managed by Matt Smith, created the most outsized call position in Marathon Oil Corporation (NYSE:MRO). Deep Basin Capital had $12.3 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $8.7 million position during the quarter. The other funds with brand new MRO positions are Vince Maddi and Shawn Brennan’s SIR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marathon Oil Corporation (NYSE:MRO) but similarly valued. These stocks are Comerica Incorporated (NYSE:CMA), Teradyne, Inc. (NYSE:TER), Datadog, Inc. (NASDAQ:DDOG), and The Western Union Company (NYSE:WU). This group of stocks’ market caps match MRO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMA 28 468164 -4
TER 31 1128584 4
DDOG 39 208582 39
WU 20 413091 -3
Average 29.5 554605 9

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $555 million. That figure was $395 million in MRO’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand The Western Union Company (NYSE:WU) is the least popular one with only 20 bullish hedge fund positions. Marathon Oil Corporation (NYSE:MRO) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MRO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MRO were disappointed as the stock returned -4.1% in 2019 (through December 23rd) 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.
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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