Concho Resources Inc. (CXO): Are Hedge Funds Right About This Stock?

Reymerlyn Martin
·6 min read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Concho Resources Inc. (NYSE:CXO).

Is Concho Resources Inc. (NYSE:CXO) a buy right now? Money managers were turning bullish. The number of long hedge fund positions went up by 13 recently. Concho Resources Inc. (NYSE:CXO) was in 44 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 45. Our calculations also showed that CXO 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). Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Zilvinas Zach Mecelis Covalis Capital
Zilvinas Zach Mecelis Covalis Capital

Zilvinas Zach of Mecelis Covalis Capital

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. Now let's take a peek at the latest hedge fund action surrounding Concho Resources Inc. (NYSE:CXO).

Hedge fund activity in Concho Resources Inc. (NYSE:CXO)

At second quarter's end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in CXO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Israel Englander's Millennium Management has the largest position in Concho Resources Inc. (NYSE:CXO), worth close to $155.1 million, amounting to 0.2% of its total 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $138.9 million position; 0.2% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish include Steve Cohen's Point72 Asset Management, Ken Griffin's Citadel Investment Group and Phill Gross and Robert Atchinson's Adage Capital Management. In terms of the portfolio weights assigned to each position Covalis Capital allocated the biggest weight to Concho Resources Inc. (NYSE:CXO), around 6.28% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, setting aside 5.27 percent of its 13F equity portfolio to CXO.

As aggregate interest increased, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Concho Resources Inc. (NYSE:CXO). Point72 Asset Management had $114.6 million invested in the company at the end of the quarter. Todd J. Kantor's Encompass Capital Advisors also made a $35 million investment in the stock during the quarter. The other funds with brand new CXO positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Zilvinas Mecelis's Covalis Capital, and John Osterweis's Osterweis Capital Management.

Let's go over hedge fund activity in other stocks similar to Concho Resources Inc. (NYSE:CXO). These stocks are Lyft, Inc. (NASDAQ:LYFT), Zendesk Inc (NYSE:ZEN), Bio-Techne Corporation (NASDAQ:TECH), United Airlines Holdings Inc (NASDAQ:UAL), Erie Indemnity Company (NASDAQ:ERIE), Medical Properties Trust, Inc. (NYSE:MPW), and Advance Auto Parts, Inc. (NYSE:AAP). This group of stocks' market values match CXO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYFT,30,324369,-1 ZEN,63,1579039,8 TECH,27,278924,1 UAL,38,917094,-3 ERIE,14,42805,-3 MPW,17,162185,1 AAP,47,1507053,9 Average,33.7,687353,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $687 million. That figure was $964 million in CXO's case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. Concho Resources Inc. (NYSE:CXO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CXO is 69.9. 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. 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately CXO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CXO were disappointed as the stock returned -8.4% since the end of June (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 many of these stocks already outperformed the market so far this year.

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

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