Were Hedge Funds Right About Embracing EOG Resources Inc (EOG)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards EOG Resources Inc (NYSE:EOG).

Is EOG Resources Inc (NYSE:EOG) a good stock to buy now? Investors who are in the know were in a bullish mood. The number of long hedge fund positions improved by 1 recently. EOG Resources Inc (NYSE:EOG) was in 45 hedge funds’ portfolios at the end of June. The all time high for this statistics is 60. Our calculations also showed that EOG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 44 hedge funds in our database with EOG positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding EOG Resources Inc (NYSE:EOG).

How have hedgies been trading EOG Resources Inc (NYSE:EOG)?

At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in EOG over the last 20 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the most valuable position in EOG Resources Inc (NYSE:EOG). Two Sigma Advisors has a $143.8 million position in the stock, comprising 0.4% of its 13F portfolio. On Two Sigma Advisors’s heels is Lyrical Asset Management, led by Andrew Wellington and Jeff Keswin, holding a $139.2 million position; 2.7% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions include D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Mountain Lake Investment Management allocated the biggest weight to EOG Resources Inc (NYSE:EOG), around 3.46% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, designating 2.74 percent of its 13F equity portfolio to EOG.

As aggregate interest increased, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in EOG Resources Inc (NYSE:EOG). Point72 Asset Management had $37.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $36.1 million position during the quarter. The following funds were also among the new EOG investors: Brandon Haley’s Holocene Advisors, Till Bechtolsheimer’s Arosa Capital Management, and Mitch Cantor’s Mountain Lake Investment Management.

Let’s now take a look at hedge fund activity in other stocks similar to EOG Resources Inc (NYSE:EOG). We will take a look at Royalty Pharma plc (NASDAQ:RPRX), Seagen Inc. (NASDAQ:SGEN), Synopsys, Inc. (NASDAQ:SNPS), Brown-Forman Corporation (NYSE:BF), Chipotle Mexican Grill, Inc. (NYSE:CMG), The Travelers Companies Inc (NYSE:TRV), and ZTO Express (Cayman) Inc. (NYSE:ZTO). All of these stocks’ market caps resemble EOG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $2499 million. That figure was $696 million in EOG’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks EOG Resources Inc (NYSE:EOG) is more popular among hedge funds. Our overall hedge fund sentiment score for EOG is 78.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately EOG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EOG were disappointed as the stock returned -24.6% since the end of the second quarter (through 10/23) 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 most of these stocks already outperformed the market in 2020.

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