Should You Invest in Kosmos Energy Ltd (KOS)?

Before we spend many hours researching a company, we’d like to analyze what hedge funds and billionaire investors think of the stock first. We would like to do so because the elite investors’ consensus returns have been exceptional. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last 12 months ending in October 30. Sixty three percent of these 30 stocks outperformed the market. Although the elite funds occasionally have their duds, such as Micron and Anadarko Petroleum, which fell 50% and 26%, respectively during the same time period, the hedge fund picks seem to work on average. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Kosmos Energy Ltd (NYSE:KOS).

Is Kosmos Energy Ltd (NYSE:KOS) a first-rate stock to buy now? The best stock pickers are getting less optimistic. The number of long hedge fund bets has gone down by eight in recent months. Kosmos Energy Ltd (NYSE:KOS) was in nine hedge funds’ portfolios at the end of the third quarter of 2015. There were 17 hedge funds in our database with Kosmos Energy Ltd (NYSE:KOS) holdings at the end of the previous quarter. 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 Logitech International SA (USA) (NASDAQ:LOGI), UniFirst Corp (NYSE:UNF), and Marriott Vacations Worldwide Corp (NYSE:VAC) to gather more data points.

Follow Kosmos Energy Ltd. (NYSE:KOS)

At the moment there are many signals stock market investors put to use to value publicly traded companies. Two of the less utilized signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can beat the S&P 500 by a healthy amount (see the details here).

Now, we’re going to take a look at the recent action regarding Kosmos Energy Ltd (NYSE:KOS).

What have hedge funds been doing with Kosmos Energy Ltd (NYSE:KOS)?

At the end of Q3, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 47% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund holdings data compiled by Insider Monkey, Baupost Group, managed by Seth Klarman, holds the most valuable position in Kosmos Energy Ltd (NYSE:KOS). Baupost Group has a $33.5 million position in the stock, comprising 0.6% of its 13F portfolio. On Baupost Group’s heels is Alec Litowitz and Ross Laser of Magnetar Capital, with a $33.3 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Some other hedge funds that hold long positions consist of Ken Griffin’s Citadel Investment Group, D E Shaw and Brian Taylor’s Pine River Capital Management.

Judging by the fact that Kosmos Energy Ltd (NYSE:KOS) has faced bearish sentiment from hedge fund managers, logic holds that there exists a select few fund managers who sold off their entire stakes heading into Q4. At the top of the heap, Steve Galbraith’s Herring Creek Capital dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling about $16.8 million in call options., and Todd J. Kantor of Encompass Capital Advisors was right behind this move, as the fund sold off about $8.4 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 8 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Kosmos Energy Ltd (NYSE:KOS). We will take a look at Logitech International SA (USA) (NASDAQ:LOGI), UniFirst Corp (NYSE:UNF), Marriott Vacations Worldwide Corp (NYSE:VAC), and Swift Transportation Co (NYSE:SWFT). This group of stocks’ market valuations are closest to Kosmos Energy Ltd (NYSE:KOS)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOGI 7 19990 -4
UNF 18 328083 -1
VAC 18 44050 4
SWFT 38 268384 6

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $165 million, versus the $98 millions that hedge funds from our database held in Kosmos Energy Ltd (NYSE:KOS) in aggregate. Swift Transportation Co (NYSE:SWFT) is the most popular stock in this table. On the other hand, Logitech International SA (USA) (NASDAQ:LOGI) is the least popular one with only 7 bullish hedge fund positions. Kosmos Energy Ltd (NYSE:KOS) is not the least popular stock in this group, but hedge fund interest is still below average. Moreover, the decline in interest that Kosmos Energy registered in the third quarter should raise some flags regarding the stock’s trajectory in the near future.