Were Hedge Funds (except Paulson) Right About Dumping Callon Petroleum Company (CPE)?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Callon Petroleum Company (NYSE:CPE) was in 12 hedge funds’ portfolios at the end of June. CPE investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 23 hedge funds in our database with CPE holdings at the end of the previous quarter. Our calculations also showed that CPE isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are plenty of tools investors can use to analyze stocks. Two of the most innovative tools are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the best money managers can beat their index-focused peers by a significant amount (see the details here).


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the fresh hedge fund action regarding Callon Petroleum Company (NYSE:CPE).

What does smart money think about Callon Petroleum Company (NYSE:CPE)?

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -48% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CPE over the last 16 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Jonathan Barrett Luminus Management

Among these funds, Luminus Management held the most valuable stake in Callon Petroleum Company (NYSE:CPE), which was worth $54.3 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $40 million worth of shares. Moreover, Cardinal Capital, AQR Capital Management, and Millennium Management were also bullish on Callon Petroleum Company (NYSE:CPE), allocating a large percentage of their portfolios to this stock.

Due to the fact that Callon Petroleum Company (NYSE:CPE) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there were a few money managers that decided to sell off their positions entirely by the end of the second quarter. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest stake of the 750 funds tracked by Insider Monkey, totaling about $21.8 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dumped about $9.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 11 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Callon Petroleum Company (NYSE:CPE) but similarly valued. We will take a look at Papa John’s International, Inc. (NASDAQ:PZZA), James River Group Holdings Ltd (NASDAQ:JRVR), Hub Group Inc (NASDAQ:HUBG), and TriMas Corp (NASDAQ:TRS). This group of stocks’ market caps resemble CPE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PZZA 22 332227 0
JRVR 10 40073 -2
HUBG 18 244748 -5
TRS 15 112396 -3
Average 16.25 182361 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $166 million in CPE’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand James River Group Holdings Ltd (NASDAQ:JRVR) is the least popular one with only 10 bullish hedge fund positions. Callon Petroleum Company (NYSE:CPE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CPE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CPE investors were disappointed as the stock returned -34.1% during the third 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 many of these stocks already outperformed the market so far in 2019.

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