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Were Hedge Funds Right About Dumping CNOOC Limited (CEO)?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at CNOOC Limited (NYSE:CEO) from the perspective of those elite funds.

Is CNOOC Limited (NYSE:CEO) going to take off soon? The smart money is becoming less confident. The number of long hedge fund bets were cut by 4 recently. Our calculations also showed that CEO 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CEO_oct2019

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 take a look at the new hedge fund action encompassing CNOOC Limited (NYSE:CEO).

How are hedge funds trading CNOOC Limited (NYSE:CEO)?

Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in CEO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Howard Marks OAKTREE CAPITAL MANAGEMENT

More specifically, Renaissance Technologies was the largest shareholder of CNOOC Limited (NYSE:CEO), with a stake worth $121.2 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $60.3 million. Oaktree Capital Management, Maverick Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that CNOOC Limited (NYSE:CEO) has witnessed bearish sentiment from hedge fund managers, logic holds that there were a few money managers who sold off their full holdings last quarter. At the top of the heap, John Horseman’s Horseman Capital Management sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $14.8 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund dropped about $0.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CNOOC Limited (NYSE:CEO) but similarly valued. These stocks are Hope Bancorp, Inc. (NASDAQ:HOPE), Installed Building Products Inc (NYSE:IBP), Supernus Pharmaceuticals Inc (NASDAQ:SUPN), and Aphria Inc. (NYSE:APHA). All of these stocks’ market caps resemble CEO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HOPE 15 65791 1
IBP 13 213470 0
SUPN 16 93537 -6
APHA 5 5186 -4
Average 12.25 94496 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $258 million in CEO’s case. Supernus Pharmaceuticals Inc (NASDAQ:SUPN) is the most popular stock in this table. On the other hand Aphria Inc. (NYSE:APHA) is the least popular one with only 5 bullish hedge fund positions. CNOOC Limited (NYSE:CEO) 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 CEO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CEO investors were disappointed as the stock returned -8.1% 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.

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