Should I Buy Alta Mesa Resources, Inc. (AMR)?

In this article you are going to find out whether hedge funds think Alta Mesa Resources, Inc. (NASDAQ:AMR) 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.

Hedge fund interest in Alta Mesa Resources, Inc. (NASDAQ:AMR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AMR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Leaf Group Ltd (NYSE:LEAF), IntriCon Corporation (NASDAQ:IIN), and Central Valley Community Bancorp (NASDAQ:CVCY) to gather more data points.

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Jeffrey Gendell of Tontine Asset Management

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

At first quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in AMR a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is AMR A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Alta Fundamental Advisers, managed by Jeremy Carton and Gilbert Li, holds the most valuable position in Alta Mesa Resources, Inc. (NASDAQ:AMR). Alta Fundamental Advisers has a $13.3 million position in the stock, comprising 7.9% of its 13F portfolio. The second most bullish fund manager is Tontine Asset Management, led by Jeffrey Gendell, holding a $11.3 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Highbridge Capital Management, Edward A. Mule’s Silver Point Capital and Kenneth Tropin’s Graham Capital Management. In terms of the portfolio weights assigned to each position Alta Fundamental Advisers allocated the biggest weight to Alta Mesa Resources, Inc. (NASDAQ:AMR), around 7.92% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, designating 1.21 percent of its 13F equity portfolio to AMR.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Alta Fundamental Advisers).

Let’s also examine hedge fund activity in other stocks similar to Alta Mesa Resources, Inc. (NASDAQ:AMR). We will take a look at Leaf Group Ltd (NYSE:LEAF), IntriCon Corporation (NASDAQ:IIN), Central Valley Community Bancorp (NASDAQ:CVCY), Timberland Bancorp, Inc. (NASDAQ:TSBK), Oxford Square Capital Corp. (NASDAQ:OXSQ), MDC Partners Inc. (NASDAQ:MDCA), and SC Health Corporation (NYSE:SCPE). This group of stocks’ market values are similar to AMR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LEAF 15 66994 -5
IIN 3 39969 0
CVCY 3 4657 -1
TSBK 6 30762 0
OXSQ 5 4028 -2
MDCA 9 56465 -4
SCPE 17 54198 0
Average 8.3 36725 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.3 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $65 million in AMR’s case. SC Health Corporation (NYSE:SCPE) is the most popular stock in this table. On the other hand IntriCon Corporation (NASDAQ:IIN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Alta Mesa Resources, Inc. (NASDAQ:AMR) is more popular among hedge funds. Our overall hedge fund sentiment score for AMR is 72.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 23.8% in 2021 through July 16th but still managed to beat the market by 7.7 percentage points. Hedge funds were also right about betting on AMR as the stock returned 91.1% since the end of March (through 7/16) 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 Alta Mesa Resources Inc. (NASDAQ:AMR)

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