At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Chevron Corporation (NYSE:CVX) makes for a good investment right now.
Is CVX a good stock to buy now? The smart money was in a bearish mood. The number of long hedge fund positions decreased by 7 in recent months. Chevron Corporation (NYSE:CVX) was in 43 hedge funds' portfolios at the end of September. The all time high for this statistic is 56. Our calculations also showed that CVX isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind we're going to analyze the new hedge fund action encompassing Chevron Corporation (NYSE:CVX).
Do Hedge Funds Think CVX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in CVX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Is CVX A Good Stock To Buy?
The largest stake in Chevron Corporation (NYSE:CVX) was held by Fisher Asset Management, which reported holding $390.9 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $247.1 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position International Value Advisers allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 2.72% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, setting aside 2.68 percent of its 13F equity portfolio to CVX.
Due to the fact that Chevron Corporation (NYSE:CVX) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who sold off their full holdings heading into Q4. At the top of the heap, Anand Parekh's Alyeska Investment Group dumped the largest stake of the 750 funds followed by Insider Monkey, totaling an estimated $24.4 million in stock. Clint Carlson's fund, Carlson Capital, also said goodbye to its stock, about $10.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Chevron Corporation (NYSE:CVX). These stocks are Zoom Video Communications, Inc. (NASDAQ:ZM), Union Pacific Corporation (NYSE:UNP), QUALCOMM, Incorporated (NASDAQ:QCOM), China Mobile Limited (NYSE:CHL), Texas Instruments Incorporated (NASDAQ:TXN), BHP Group (NYSE:BHP), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks' market caps resemble CVX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZM,56,9721272,8 UNP,74,3916765,6 QCOM,87,2581329,13 CHL,10,400662,1 TXN,55,2079422,0 BHP,18,710662,2 CHTR,88,11998879,-8 Average,55.4,4486999,3.1 [/table]
As you can see these stocks had an average of 55.4 hedge funds with bullish positions and the average amount invested in these stocks was $4487 million. That figure was $1247 million in CVX's case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 10 bullish hedge fund positions. Chevron Corporation (NYSE:CVX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CVX is 42.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CVX as the stock returned 29% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
