Most U.S.-listed energy stocks, which are closely linked to the Chinse demand for commodities, continued their disappointing performance during the third quarter. According to the U.S. Energy Information Administration, North Sea Brent crude oil prices averaged approximately $48 per barrel in September, which marked an increase of $1 per barrel from the average of the previous month. At the same time, EIA anticipates that crude oil prices will average $54 per barrel this year and $59 per barrel in 2016, which might suggest that the downside for the energy sector is limited. The low-oil-price environment has created significant problems for emerging-market countries and for overleveraged small and medium energy companies. The current price level of crude oil is not sustainable for oil-export dependent countries and for the companies activating in this industry, so one should expect a rebound in the months ahead. Having this in mind, we will lay out a list of five low-priced energy stocks that might achieve a turnaround in the near future. It is worth mentioning that we are not compiling this list based on our instincts or “Vanga-type” predictions, we solely rely on hedge fund sentiment.
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 102% over the last 3 years and outperformed the S&P 500 Index by 53 percentage points (see more details here).
5. Oasis Petroleum Inc. (NYSE:OAS)
Investors with Long Positions (as of June 30): 28
Aggregate Value of Investors’ Holdings (as of June 30): $868.21 Million
Oasis Petroleum Inc. (NYSE:OAS) lost some of its appeal among hedge funds during the second quarter, as the number of top money managers invested in the stock decreased by four quarter-over-quarter. Even so, the hedge funds monitored by Insider Monkey stockpiled 39.30% of the company’s shares on June 30. The company had a disastrous third quarter in terms of stock performance, as its shares lost 45% during the three-month period. However, the stock has gained more than 27% since the end of September. Earlier this month, the company announced that its lenders completed their regular semi-annual re-determination of the borrowing base, which resulted in a borrowing base of nearly $1.53 billion. Considering that Oasis Petroleum borrowed only a small portion of its available capacity, the company is not likely to face any major financial problems in the upcoming year. John H. Scully’s SPO Advisory Corp reported ownership of 20.37 million shares of Oasis Petroleum Inc. (NYSE:OAS) as of June 30.