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Were Hedge Funds Right About Deserting Occidental Petroleum Corporation (OXY)?

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Occidental Petroleum Corporation (NYSE:OXY) from the perspective of those elite funds.

Occidental Petroleum Corporation (NYSE:OXY) investors should pay attention to a decrease in support from the world’s most elite money managers of late. OXY was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 35 hedge funds in our database with OXY holdings at the end of the previous quarter. Our calculations also showed that OXY isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

D. E. Shaw

We’re going to view the new hedge fund action encompassing Occidental Petroleum Corporation (NYSE:OXY).

What does the smart money think about Occidental Petroleum Corporation (NYSE:OXY)?

Heading into the first quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2018. On the other hand, there were a total of 34 hedge funds with a bullish position in OXY a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

OXY_mar2019

The largest stake in Occidental Petroleum Corporation (NYSE:OXY) was held by Two Sigma Advisors, which reported holding $256.1 million worth of stock at the end of September. It was followed by Millennium Management with a $201 million position. Other investors bullish on the company included Levin Capital Strategies, D E Shaw, and Renaissance Technologies.

Since Occidental Petroleum Corporation (NYSE:OXY) has faced falling interest from hedge fund managers, it’s easy to see that there exists a select few money managers that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners dumped the largest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $59.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $32.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Occidental Petroleum Corporation (NYSE:OXY) but similarly valued. We will take a look at UBS Group AG (NYSE:UBS), Prudential plc (NYSE:PUK), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), and Lloyds Banking Group PLC (NYSE:LYG). This group of stocks’ market caps resemble OXY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UBS 11 739518 -3
PUK 9 29777 4
SMFG 11 435663 1
LYG 10 30461 5
Average 10.25 308855 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $309 million. That figure was $1051 million in OXY’s case. UBS Group AG (NYSE:UBS) is the most popular stock in this table. On the other hand Prudential plc (NYSE:PUK) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Occidental Petroleum Corporation (NYSE:OXY) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately OXY wasn’t in this group. Hedge funds that bet on OXY were disappointed as the stock returned 7.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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