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

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. 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 Occidental Petroleum Corporation (NYSE:OXY).

Is Occidental Petroleum Corporation (NYSE:OXY) a buy here? Investors who are in the know are in a bearish mood. The number of long hedge fund positions went down by 18 in recent months. Our calculations also showed that OXY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). OXY was in 44 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 62 hedge funds in our database with OXY holdings at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Carl Icahn - Icahn Capital Lp

Carl Icahn of Icahn Capital

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 analyze the recent hedge fund action regarding Occidental Petroleum Corporation (NYSE:OXY).

How are hedge funds trading Occidental Petroleum Corporation (NYSE:OXY)?

At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OXY 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.

When looking at the institutional investors followed by Insider Monkey, Carl Icahn’s Icahn Capital LP has the largest position in Occidental Petroleum Corporation (NYSE:OXY), worth close to $930.2 million, comprising 3.6% of its total 13F portfolio. On Icahn Capital LP’s heels is Warren Buffett of Berkshire Hathaway, with a $780.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include John Murphy’s Levin Easterly Partners, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Levin Capital Strategies allocated the biggest weight to Occidental Petroleum Corporation (NYSE:OXY), around 3.7% of its 13F portfolio. Icahn Capital LP is also relatively very bullish on the stock, earmarking 3.55 percent of its 13F equity portfolio to OXY.

Seeing as Occidental Petroleum Corporation (NYSE:OXY) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that slashed their positions entirely heading into Q4. At the top of the heap, Kenneth Mario Garschina’s Mason Capital Management sold off the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $132 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $90 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 18 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Occidental Petroleum Corporation (NYSE:OXY) but similarly valued. These stocks are The Allstate Corporation (NYSE:ALL), Constellation Brands, Inc. (NYSE:STZ), Telefonica S.A. (NYSE:TEF), and Thomson Reuters Corporation (NYSE:TRI). This group of stocks’ market values are similar to OXY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALL 37 1712738 -11
STZ 52 1980100 6
TEF 9 36499 4
TRI 21 343733 0
Average 29.75 1018268 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1018 million. That figure was $2306 million in OXY’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 9 bullish hedge fund positions. Occidental Petroleum Corporation (NYSE:OXY) 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 OXY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on OXY were disappointed as the stock returned -61.9% 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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