Were Hedge Funds Right About Centennial Resource Development, Inc. (CDEV)?

Asma UL Husna

Sat, May 9, 2020, 7:07 PM 5 min read

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Centennial Resource Development, Inc. (NASDAQ:CDEV).

Is Centennial Resource Development, Inc. (NASDAQ:CDEV) a buy right now? The smart money is betting on the stock. The number of long hedge fund bets rose by 1 recently. Our calculations also showed that CDEV isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_735641" align="aligncenter" width="397"]

Michael Lowenstein of Kensico Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a peek at the new hedge fund action regarding Centennial Resource Development, Inc. (NASDAQ:CDEV).

Hedge fund activity in Centennial Resource Development, Inc. (NASDAQ:CDEV)

Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CDEV over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, SailingStone Capital Partners held the most valuable stake in Centennial Resource Development, Inc. (NASDAQ:CDEV), which was worth $27.4 million at the end of the third quarter. On the second spot was Kensico Capital which amassed $24.2 million worth of shares. Alyeska Investment Group, D E Shaw, and Kingdon 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 SailingStone Capital Partners allocated the biggest weight to Centennial Resource Development, Inc. (NASDAQ:CDEV), around 6.31% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, dishing out 3.07 percent of its 13F equity portfolio to CDEV.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Kingdon Capital, managed by Mark Kingdon, initiated the most outsized position in Centennial Resource Development, Inc. (NASDAQ:CDEV). Kingdon Capital had $11.8 million invested in the company at the end of the quarter. Matt Smith's Deep Basin Capital also initiated a $6 million position during the quarter. The other funds with new positions in the stock are Bill Miller's Miller Value Partners, Phill Gross and Robert Atchinson's Adage Capital Management, and Renaissance Technologies.

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 Enterprise Financial Services Corp (NASDAQ:EFSC), Blucora Inc (NASDAQ:BCOR), Tactile Systems Technology, Inc. (NASDAQ:TCMD), and Eldorado Gold Corp (NYSE:EGO). This group of stocks' market valuations are similar to CDEV's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EFSC,14,58786,1 BCOR,13,134223,-1 TCMD,12,45652,2 EGO,13,149900,0 Average,13,97140,0.5 [/table]

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 $97 million. That figure was $188 million in CDEV's case. Enterprise Financial Services Corp (NASDAQ:EFSC) is the most popular stock in this table. On the other hand Tactile Systems Technology, Inc. (NASDAQ:TCMD) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Centennial Resource Development, Inc. (NASDAQ:CDEV) 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 gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately CDEV wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CDEV were disappointed as the stock returned -80.4% during the four months of 2020 (through May 1st) 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 most of these stocks already outperformed the market in 2020.