Is SM Energy Company (SM) A Good Stock To Buy?

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Is SM Energy Company (NYSE:SM) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is SM a good stock to buy? The best stock pickers were in a bearish mood. The number of bullish hedge fund bets dropped by 4 in recent months. SM Energy Company (NYSE:SM) was in 16 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 32. Our calculations also showed that SM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 20 hedge funds in our database with SM holdings at the end of December.

To the average investor there are dozens of signals shareholders use to appraise their holdings. A couple of the best signals are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the best money managers can trounce their index-focused peers by a superb margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

David Siegel of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Now we’re going to take a gander at the recent hedge fund action surrounding SM Energy Company (NYSE:SM).

Do Hedge Funds Think SM Is A Good Stock To Buy Now?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2020. By comparison, 17 hedge funds held shares or bullish call options in SM a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Maple Rock Capital was the largest shareholder of SM Energy Company (NYSE:SM), with a stake worth $120.2 million reported as of the end of March. Trailing Maple Rock Capital was Two Sigma Advisors, which amassed a stake valued at $30.9 million. D E Shaw, Slate Path Capital, and Millennium Management 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 Maple Rock Capital allocated the biggest weight to SM Energy Company (NYSE:SM), around 17.44% of its 13F portfolio. Hill City Capital is also relatively very bullish on the stock, earmarking 2.76 percent of its 13F equity portfolio to SM.

Seeing as SM Energy Company (NYSE:SM) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there exists a select few funds that slashed their entire stakes last quarter. It’s worth mentioning that Charles Davidson and Joseph Jacobs’s Wexford Capital dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $3 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund dropped about $2.4 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SM Energy Company (NYSE:SM) but similarly valued. We will take a look at Sundial Growers Inc. (NASDAQ:SNDL), At Home Group Inc. (NYSE:HOME), Cal-Maine Foods Inc (NASDAQ:CALM), Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), ADC Therapeutics SA (NYSE:ADCT), NuStar Energy L.P. (NYSE:NS), and Kura Oncology, Inc. (NASDAQ:KURA). All of these stocks’ market caps are closest to SM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNDL 7 18832 5
HOME 30 806839 -1
CALM 20 224111 -1
MDGL 17 494379 2
ADCT 8 233473 -4
NS 4 17919 0
KURA 32 591074 -11
Average 16.9 340947 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $341 million. That figure was $237 million in SM’s case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 4 bullish hedge fund positions. SM Energy Company (NYSE:SM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SM is 37.4. 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 28.5% in 2021 through July 23rd and beat the market by 10.1 percentage points. A small number of hedge funds were also right about betting on SM, though not to the same extent, as the stock returned 13.8% since the end of Q1 (through July 23rd) and outperformed the market.

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