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Were Hedge Funds Right About Cheniere Energy, Inc. (LNG)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Cheniere Energy, Inc. (NYSE:LNG) based on that data.

Hedge fund interest in Cheniere Energy, Inc. (NYSE:LNG) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LNG to other stocks including Arista Networks Inc (NYSE:ANET), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), and Paycom Software Inc (NYSE:PAYC) to get a better sense of its popularity.

To the average investor there are tons of signals investors can use to grade stocks. A duo of the most under-the-radar signals are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce the market by a healthy amount (see the details here).

BAUPOST GROUP Seth Klarman

Seth Klarman of Baupost Group

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the key hedge fund action surrounding Cheniere Energy, Inc. (NYSE:LNG).

How have hedgies been trading Cheniere Energy, Inc. (NYSE:LNG)?

At Q4’s end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in LNG over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Icahn Capital LP held the most valuable stake in Cheniere Energy, Inc. (NYSE:LNG), which was worth $1196.1 million at the end of the third quarter. On the second spot was Baupost Group which amassed $619.2 million worth of shares. Kensico Capital, Steadfast Capital Management, and Zimmer Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dumont Global allocated the biggest weight to Cheniere Energy, Inc. (NYSE:LNG), around 46.67% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, earmarking 13.21 percent of its 13F equity portfolio to LNG.

Due to the fact that Cheniere Energy, Inc. (NYSE:LNG) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their positions entirely in the third quarter. It’s worth mentioning that Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors said goodbye to the largest investment of the 750 funds followed by Insider Monkey, totaling an estimated $245.7 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also sold off its stock, about $36.5 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Cheniere Energy, Inc. (NYSE:LNG). These stocks are Arista Networks Inc (NYSE:ANET), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Paycom Software Inc (NYSE:PAYC), and Genuine Parts Company (NYSE:GPC). This group of stocks’ market values match LNG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANET 26 284265 3
SSNC 59 1996210 13
PAYC 27 385882 -6
GPC 21 271270 0
Average 33.25 734407 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $734 million. That figure was $3483 million in LNG’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Genuine Parts Company (NYSE:GPC) is the least popular one with only 21 bullish hedge fund positions. Cheniere Energy, Inc. (NYSE:LNG) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately LNG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LNG were disappointed as the stock returned -29.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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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