Were Hedge Funds Right About Piling Into CNX Resources Corporation (CNX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards CNX Resources Corporation (NYSE:CNX) and determine whether hedge funds skillfully traded this stock.

Is CNX Resources Corporation (NYSE:CNX) undervalued? The best stock pickers were buying. The number of bullish hedge fund bets advanced by 6 in recent months. Our calculations also showed that CNX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CNX was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with CNX positions at the end of the previous quarter.

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

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a look at the latest hedge fund action regarding CNX Resources Corporation (NYSE:CNX).

What does smart money think about CNX Resources Corporation (NYSE:CNX)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CNX over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is CNX A Good Stock To Buy?

Among these funds, Southeastern Asset Management held the most valuable stake in CNX Resources Corporation (NYSE:CNX), which was worth $257 million at the end of the third quarter. On the second spot was Greenlight Capital which amassed $39.3 million worth of shares. Adage Capital Management, Arrowstreet Capital, and Saba Capital 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 Southeastern Asset Management allocated the biggest weight to CNX Resources Corporation (NYSE:CNX), around 6.11% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, earmarking 5.6 percent of its 13F equity portfolio to CNX.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most outsized position in CNX Resources Corporation (NYSE:CNX). Adage Capital Management had $9.8 million invested in the company at the end of the quarter. Boaz Weinstein’s Saba Capital also made a $4.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Steve Cohen’s Point72 Asset Management, and Vince Maddi and Shawn Brennan’s SIR Capital Management.

Let’s check out hedge fund activity in other stocks similar to CNX Resources Corporation (NYSE:CNX). These stocks are Broadmark Realty Capital Inc. (NYSE:BRMK), Eagle Bancorp, Inc. (NASDAQ:EGBN), Lindsay Corporation (NYSE:LNN), and Enerpac Tool Group Corp. (NYSE:EPAC). This group of stocks’ market valuations are similar to CNX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRMK 15 93964 -2
EGBN 12 12086 -6
LNN 11 170200 2
EPAC 14 171298 -6
Average 13 111887 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $332 million in CNX’s case. Broadmark Realty Capital Inc. (NYSE:BRMK) is the most popular stock in this table. On the other hand Lindsay Corporation (NYSE:LNN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks CNX Resources Corporation (NYSE:CNX) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CNX as the stock returned 62.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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