We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Centennial Resource Development, Inc. (NASDAQ:CDEV).
Is Centennial Resource Development, Inc. (NASDAQ:CDEV) a healthy stock for your portfolio? Investors who are in the know were becoming less hopeful. The number of bullish hedge fund bets dropped by 1 recently. Centennial Resource Development, Inc. (NASDAQ:CDEV) was in 22 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 29. Our calculations also showed that CDEV isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 23 hedge funds in our database with CDEV holdings at the end of March.
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Michael Lowenstein of Kensico Capital
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Do Hedge Funds Think CDEV Is A Good Stock To Buy Now?
At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in CDEV a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Centennial Resource Development, Inc. (NASDAQ:CDEV), with a stake worth $45.1 million reported as of the end of June. Trailing D E Shaw was Two Sigma Advisors, which amassed a stake valued at $23.8 million. Arrowstreet Capital, Citadel Investment Group, and Kensico 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 Covalent Capital Partners allocated the biggest weight to Centennial Resource Development, Inc. (NASDAQ:CDEV), around 0.59% of its 13F portfolio. Kensico Capital is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to CDEV.
Seeing as Centennial Resource Development, Inc. (NASDAQ:CDEV) has faced declining sentiment from hedge fund managers, logic holds that there is a sect of funds that elected to cut their full holdings in the second quarter. At the top of the heap, Robert Henry Lynch's Aristeia Capital said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, totaling an estimated $1.1 million in stock. Jonathan Soros's fund, JS Capital, also sold off its stock, about $0.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Centennial Resource Development, Inc. (NASDAQ:CDEV) but similarly valued. These stocks are Seacoast Banking Corporation of Florida (NASDAQ:SBCF), Banner Corporation (NASDAQ:BANR), SJW Corp. (NYSE:SJW), Methode Electronics Inc. (NYSE:MEI), Crestwood Equity Partners LP (NYSE:CEQP), Ping Identity Holding Corp. (NYSE:PING), and Euronav NV (NYSE:EURN). This group of stocks' market valuations resemble CDEV's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBCF,11,40467,2 BANR,11,42049,-6 SJW,7,60257,-2 MEI,7,85144,-6 CEQP,7,15756,2 PING,23,784773,12 EURN,17,100681,0 Average,11.9,161304,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $153 million in CDEV's case. Ping Identity Holding Corp. (NYSE:PING) is the most popular stock in this table. On the other hand SJW Corp. (NYSE:SJW) is the least popular one with only 7 bullish hedge fund positions. Centennial Resource Development, Inc. (NASDAQ:CDEV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDEV is 73.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CDEV as the stock returned 6.2% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.