In this article we take a look at how Hedge Funds Were Right About These 10 Soaring Stocks. Click to skip ahead and see why Hedge Funds Were Right About These 5 Soaring Stocks.
Exxon Mobil Corporation (NYSE:XOM), Range Resources Corporation (NYSE:RRC), and Occidental Petroleum Corporation (NYSE:OXY) are three stocks that have been on fire this year, which also coincides with hedge funds buying up their shares in droves in recent quarters.
The stock market has taken a beating this year following an impressive 2021, with the S&P 500 falling by 13.8% year-to-date and the Nasdaq slumping by 21.7%. While it’s not uncommon for the market to give back some of its gains in the first quarter following such a strong prior year, the combination of economic and political uncertainty that has also abounded has led to a steep correction.
There have been some bright spots on the market however, several of which were uncovered by hedge funds heading into 2022. Energy has been one of the best performing sectors this year, and several hedge funds were remaking their portfolios dramatically in late 2021 and early 2022 to capitalize on that trend.
Louis Navellier of Navellier & Associates
One of them was Louis Navellier’s Navellier & Associates, which increased its 13F portfolio’s exposure to energy stocks to 10% in Q1 from just 2% a quarter earlier, the most exposure it’s had to the sector in more than a decade. The Energy Select Sector SPDR Fund has gained over 37% this year. Unsurprisingly, energy stocks dominate this list.
The utilities industry has been one of the few other bright spots this year, gaining 3.3%. When we look at individual sectors within broader industries, a few other standout performers come to light. While the consumer staples industry is down 3.9% this year, brewers have excelled, gaining 28.9% as investors turn to alcohol to drown their sorrows (perhaps partially true). Soft drink stocks have also gained 4.5%.
In the healthcare space, managed healthcare stocks have done very well, gaining 7%, while pharmaceuticals stocks are up by 1.7%, each benefitting from ongoing pandemic tailwinds. Though said tailwinds have been dissipating, it’s been suggested that another significant wave of Covid will arrive in the fall.
With political uncertainty front and center, aerospace and defense stocks have been the lone bright spot in the industrials and transportation sector, gaining 4.6%. Fertilizer and steel stocks have also done very well this year, gaining 22.9% and 19% respectively, thanks to the prices of both commodities soaring. The interactive home entertainment sector has been the lone bright spot in the broader communications services industry, gaining 5.1% even as video game sales are forecast to contract by 1.2% this year.
So while 2022 has been a slog for most investors, there have been a few standout sectors, several of which hedge funds were aptly targeting in recent quarters. In this article we’ll look at ten stocks that hedge funds have been buying like crazy in recent quarters, and which have rewarded them with big gains in 2022.
The following article covers stocks which have gained at least 40% this year (as of August 4), all of which have had strong hedge fund support in recent quarters. All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q1 2022 reporting period. We follow hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
Hedge Funds Were Right About These 10 Soaring Stocks
10. Crescent Point Energy Corp (NYSE:CPG)
Number of Hedge Fund Shareholders: 18
Year-to-Date Returns: 40.3%
Exxon Mobil Corporation (NYSE:XOM), Range Resources Corporation (NYSE:RRC), and Occidental Petroleum Corporation (NYSE:OXY) have all gained over 50% in 2022, enriching some of the many hedge funds that have been buying them recently.
While Crescent Point Energy Corp (NYSE:CPG) hasn’t delivered quite those levels of returns, its 40% gains nonetheless rank the small-cap Canadian exploration and production company as one of the top performing stocks this year.
Hedge fund ownership of Crescent Point Energy Corp (NYSE:CPG) rose to a three-year high in the first quarter and has risen by 64% over the previous two quarters. Noam Gottesman’s GLG Partners and Charles Davidson’s Wexford Capital are just a few of the funds that have taken stakes in CPG over the previous two quarters.
Crescent Point Energy Corp (NYSE:CPG)’s adjusted EPS jumped to C$0.47 in the second quarter from C$0.20 a year earlier. With the company having recently reached its near-term debt target, it now plans to return the bulk of its excess free cash flow to shareholders. In July, the company announced a 60% hike to its quarterly dividend, to $0.08 per share.
9. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Shareholders: 47
Year-to-Date Returns: 43.6%
Hedge fund ownership of Marathon Oil Corporation (NYSE:MRO) has risen over five of the past six quarters, jumping by a total of 156% during that time. Paul Tudor Jones’ Tudor Investment Corp and Zach Schreiber’s Point State Capital are among the recent buyers of Marathon Oil.
While most energy companies are in a great financial position thanks to soaring oil prices, Marathon Oil Corporation (NYSE:MRO) has been able to benefit even more than most thanks to its limited price hedging activity. That’s allowed the E&P to fully capitalize on the current market and make a boatload of money.
The Carillon Clarivest Capital Appreciation Fund praised Marathon Oil Corporation (NYSE:MRO)’s aggressive shareholder return initiatives in its Q1 2022 investor letter:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil (NYSE:MRO) increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”
8. Murphy USA Inc. (NYSE:MUSA)
Number of Hedge Fund Shareholders: 26
Year-to-Date Returns: 43.7%
There’s been a 53% increase in the number of hedge funds long Murphy USA Inc. (NYSE:MUSA) over the past two quarters. The new buyers have included Greg Eisner’s Engineers Gate Manager and David Harding’s Winton Capital Management.
A gasoline and convenience retailer, Murphy USA Inc. (NYSE:MUSA)’s EPS soared to $7.53 in the second quarter, topping consensus estimates by more than $3. Even as gas prices began accelerating during Q1, volumes on a same-store basis were strong, rising by 4.8%. The company is facing some labor pressures however, which has forced it to pay out more overtime hours and offer greater incentives to prospective employees.
Another recent buyer of Murphy USA Inc. (NYSE:MUSA) is LRT Capital Management, which declared the company’s shares undervalued in its Q2 2022 investor letter:
“We have held a position in Murphy USA for several months and have recently increased it, making it a top ten name in the portfolio. The company is a gas station operator and was spun-off from Murphy Oil in 2013. Murphy USA operates 1,700 stores primarily in Walmart parking lot locations and owns the underlying real-estate.
What makes Murphy USA unique from other convenience store operators such as Casey’s General Stores, Inc. and Alimentation Couche-Tard Inc, is the company’s focus on high volumes of gasoline sales and a minimal amount of convenience store sales. Fuel sales account for close to 60% of gross profit, a big difference from a typical convenience store, where fuel is close to 25% of profits. Most locations have a very small store of approximately 500 sqft only.
In December 2020, Murphy USA purchased QuickChek, a chain of 157 stations in the New Jersey and New York with an average store size of 5,500 sqft. which will strengthen the company’s food offering and expand the company’s focus into larger store formats.
The industry Murphy USA operates is attractive because of rising fixed costs of operations which are squeezing smaller and less well capitalized players leading to industry consolidation. While the advent of electric cars may mean less gasoline sales in the future, we continue to believe that the transition to electric vehicles will take a lot longer than most analysts believe.
The company has been using all available cashflow to repurchase shares, a value creating activity, as we view the shares as undervalued.”
7. Hess Corporation (NYSE:HES)
Number of Hedge Fund Shareholders: 40
Year-to-Date Returns: 46.8%
Another independent oil and gas producer lands on the list of stocks hedge funds were right about, as ownership of Hess Corporation (NYSE:HES) rose by 48% over the previous two quarters, one tick above the stocks 47% gains this year. Michael A. Price and Amos Meron’s Empyrean Capital Partners built a new stake of 537,250 HES shares during Q1.
Hess Corporation (NYSE:HES)’s Q2 EPS of $2.15 was in line with estimates, while its $2.99 billion in revenue topped estimates by more than 20%. Unplanned downtime in the Bakken lead to a small miss on production guidance, and the company could be facing the same issues in the Gulf of Mexico in the current quarter.
Piper Sandler analyst Ryan Todd raised his price target on Hess Corporation (NYSE:HES) to $165 from $161 in mid-July, noting that recession fears have already taken their toll on the shares of refiners and integrated oil companies, which should leave room to the upside given quarterly results that are expected to be robust.
6. Southwestern Energy Company (NYSE:SWN)
Number of Hedge Fund Shareholders: 35
Year-to-Date Returns: 50.4%
Closing out the first half of the list is Southwestern Energy Company (NYSE:SWN), hedge fund ownership of which has jumped by 59% over the past two quarters to hit a five-year high. David Einhorn’s Greenlight Capital took a stake of 4.13 million SWN shares in the first quarter and discussed its purchase in the fund’s Q1 investor letter.
Here is what Greenlight Capital had to say about Southwestern Energy Company (NYSE:SWN):
“SWN is the second largest producer of natural gas in the U.S. The company is well-situated to satisfy growing domestic and export demand. Over the short, medium and long term, Europe now intends to reduce its reliance on Russian energy and increase its use of U.S. LNG. Based on its 2021 year-end reserves – which assumed a $3.60/MMBtu long-term natural gas price – SWN has a PV-104 value of $13.83 per share. By the end of the first quarter, the U.S. natural gas 5-year forward curve averaged $4.28/MMBtu, while international seaborne LNG was close to $20/MMBtu. Over the intermediate term, with the benefit of substantial global investment in infrastructure, we expect prices for U.S. and international natural gas to converge. We acquired our shares at an average price of $6.58. SWN shares ended the quarter at $7.17.”
With robust 50% gains year-to-date, Southwestern Energy Company (NYSE:SWN) joined the likes of Exxon Mobil Corporation (NYSE:XOM), Range Resources Corporation (NYSE:RRC), and Occidental Petroleum Corporation (NYSE:OXY) as some of the best stock performers of 2022 that hedge funds have been buying in droves. See the rest of the list at the below link.
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Disclosure: None. Hedge Funds Were Right About These 10 Soaring Stocks is originally published at Insider Monkey.