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Do Hedge Funds and Insiders Love Clayton Williams Energy, Inc. (CWEI)?: Midstates Petroleum Company Inc (MPO), Permian Basin Royalty Trust (PBT)

Is Clayton Williams Energy, Inc. (NASDAQ:CWEI) a bargain? Hedge funds are reducing their bets on the stock. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience

Clayton Williams Energy, Inc. (NASDAQ:CWEI)According to most stock holders, hedge funds are perceived as slow, outdated financial tools of years past. While there are over 8000 funds in operation today, we hone in on the crème de la crème of this club, close to 450 funds. It is estimated that this group controls the lion’s share of all hedge funds’ total capital, and by monitoring their highest performing stock picks, we have unsheathed a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).

Equally as key, positive insider trading sentiment is another way to parse down the investments you’re interested in. Obviously, there are lots of reasons for a bullish insider to sell shares of his or her company, but just one, very clear reason why they would initiate a purchase. Many academic studies have demonstrated the valuable potential of this tactic if piggybackers understand where to look (learn more here).

Now, we’re going to take a peek at the recent action surrounding Clayton Williams Energy, Inc. (NASDAQ:CWEI).

How have hedgies been trading Clayton Williams Energy, Inc. (NASDAQ:CWEI)?

Heading into 2013, a total of 5 of the hedge funds we track were bullish in this stock, a change of 0% from the third quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially.

When looking at the hedgies we track, Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners had the biggest position in Clayton Williams Energy, Inc. (NASDAQ:CWEI), worth close to $7 million, accounting for 1.6% of its total 13F portfolio. Sitting at the No. 2 spot is Lucas Capital Management, managed by Russell Lucas, which held a $2 million position; 1.6% of its 13F portfolio is allocated to the company. Other peers that are bullish include Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Paul Tudor Jones’s Tudor Investment Corp.

Because Clayton Williams Energy, Inc. (NASDAQ:CWEI) has witnessed a declination in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that slashed their full holdings heading into 2013. Interestingly, Jim Simons’s Renaissance Technologies dumped the largest investment of the “upper crust” of funds we track, worth about $0 million in stock.. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $0 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading Clayton Williams Energy, Inc. (NASDAQ:CWEI)?

Insider trading activity, especially when it’s bullish, is particularly usable when the company in question has seen transactions within the past half-year. Over the last half-year time frame, Clayton Williams Energy, Inc. (NASDAQ:CWEI) has experienced 2 unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Clayton Williams Energy, Inc. (NASDAQ:CWEI). These stocks are Midstates Petroleum Company Inc (NYSE:MPO), Permian Basin Royalty Trust (NYSE:PBT), Goodrich Petroleum Corporation (NYSE:GDP), Matador Resources Co (NYSE:MTDR), and Enduro Royalty Trust (NYSE:NDRO). This group of stocks are the members of the independent oil & gas industry and their market caps are similar to CWEI’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Midstates Petroleum Company Inc (NYSE:MPO) 2 2 0
Permian Basin Royalty Trust (NYSE:PBT) 5 0 0
Goodrich Petroleum Corporation (NYSE:GDP) 12 3 2
Matador Resources Co (NYSE:MTDR) 3 11 0
Enduro Royalty Trust (NYSE:NDRO) 1 0 0

With the returns shown by the aforementioned research, retail investors should always pay attention to hedge fund and insider trading sentiment, and Clayton Williams Energy, Inc. (NASDAQ:CWEI) is an important part of this process.

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Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.

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