Crude oil prices have been enjoying a great run since reaching a 12-year low in February, thanks to mounting signs that the global crude oil supply glut has started to slowly fade away amid declining production in the United States. Analysts at investment bank Goldman Sachs, an outspoken bear on crude oil prices, recently changed their prospects on crude, saying that “the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected”. The Minister of Economy in the United Arab Emirates, Sultan Bin Saeed Al Mansoori, said at a conference in Abu Dhabi on May 30 that “it’s possible for oil prices to reach $60 or more during this summer”. Assuming his prophecy turns out to be accurate, energy-related stocks may have more room to run in the foreseeable future, though it should be noted that if crude prices extend their buoyant rally to such levels, some U.S oil exploration and production companies may start operating more wells in the near future, which may put pressure on crude prices yet again. We at Insider Monkey decided to lay out a list of the five energy stocks that have a price tag below $5 which are the most-favored by the investment firms that we track.
At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
#5. Gran Tierra Energy Inc. (NYSEMKT:GTE)
– Investors with long positions (as of March 31): 16
– Aggregate value of investors’ holdings (as of March 31): $105.26 Million
The hedge fund sentiment towards Gran Tierra Energy Inc. (NYSEMKT:GTE) increased during the first quarter of 2016, as the number of funds tracked by Insider Monkey with stakes in the company increased to 16 from 13 quarter-over-quarter. Nonetheless, the overall value of those stakes dropped to $105.26 million from $110.32 million quarter-over-quarter. The 16 asset managers accumulated nearly 15% of Gran Tierra Energy’s outstanding common stock. Gran Tierra Energy, which focuses on oil and natural gas exploration and production in Colombia, has seen its shares advance by 35% since the beginning of 2016. The company’s oil and gas sales for the first three months of 2016 came in at $57.40 million, down from $76.23 million reported in the same period of 2015. Meanwhile, Gran Tierra Energy’s oil and gas sales volumes for the quarter increased by 31% to 25,430 barrels of oil equivalent per day. Jim Simons’ Renaissance Technologies upped its stake in Gran Tierra Energy Inc. (NYSEMKT:GTE) by 23% during the first quarter, to 7.20 million shares.
#4. Denbury Resources Inc. (NYSE:DNR)
– Investors with long positions (as of March 31): 17
– Aggregate value of investors’ holdings (as of March 31): $56.51 Million
The number of hedge funds in our system with long positions in Denbury Resources Inc. (NYSE:DNR) remained unchanged at 17 during the first three months of 2016. However, the aggregate value of those long positions dropped to $56.51 million from $61.80 million during the quarter. Approximately 7% of Denbury’s outstanding shares were held by the 17 hedge funds tracked by Insider Monkey. The shares of the independent oil and natural gas company, which has operations in the Gulf Coast and Rocky Mountain regions, have seen their market value skyrocket by 94% since the start of 2016. The company has a capital development budget of $200 million for 2016, which is anticipated to be mainly funded with cash flow from operations. It is important to note that Denbury Resources’ oil assets have relatively low decline rates, so the company’s 2016 production is expected to decline by less than 10% despite plans to significantly reduce capital spending. David Dreman’s Dreman Value Management acquired a new stake of 764,423 shares of Denbury Resources Inc. (NYSE:DNR) during the March quarter.
We’ll study the three energy stocks currently trading below $5 per share that hedge funds love the most.