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Were Hedge Funds Right About Souring On EOG Resources Inc (EOG)?

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

EOG Resources Inc (NYSE:EOG) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds’ portfolios at the end of December. At the end of this article we will also compare EOG to other stocks including Schlumberger Limited. (NYSE:SLB), Boston Scientific Corporation (NYSE:BSX), and Deere & Company (NYSE:DE) to get a better sense of its popularity.

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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Izzy Englander of MILLENNIUM MANAGEMENT

Let’s take a gander at the fresh hedge fund action surrounding EOG Resources Inc (NYSE:EOG).

What have hedge funds been doing with EOG Resources Inc (NYSE:EOG)?

At Q4’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 40 hedge funds with a bullish position in EOG a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

KS

Among these funds, Millennium Management held the most valuable stake in EOG Resources Inc (NYSE:EOG), which was worth $103.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $94.6 million worth of shares. Moreover, Ariel Investments, Citadel Investment Group, and Levin Capital Strategies were also bullish on EOG Resources Inc (NYSE:EOG), allocating a large percentage of their portfolios to this stock.

Seeing as EOG Resources Inc (NYSE:EOG) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Rob Citrone’s Discovery Capital Management sold off the largest position of the 700 funds monitored by Insider Monkey, comprising an estimated $48.4 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund sold off about $15.3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to EOG Resources Inc (NYSE:EOG). These stocks are Schlumberger Limited. (NYSE:SLB), Boston Scientific Corporation (NYSE:BSX), Deere & Company (NYSE:DE), and General Motors Company (NYSE:GM). This group of stocks’ market caps match EOG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SLB 52 1948982 -3
BSX 46 1700622 1
DE 47 2093476 10
GM 60 5275128 -1
Average 51.25 2754552 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.25 hedge funds with bullish positions and the average amount invested in these stocks was $2755 million. That figure was $520 million in EOG’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Boston Scientific Corporation (NYSE:BSX) is the least popular one with only 46 bullish hedge fund positions. Compared to these stocks EOG Resources Inc (NYSE:EOG) is even less popular than BSX. 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 EOG wasn’t in this group. The small number of hedge funds that bet on EOG were disappointed as the stock returned 2.1% 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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