In a new 13G Form filed with the U.S. Securities and Exchange Commission, Brett Hendrickson’s Nokomis Capital disclosed an increase in its holdings of Penn Virginia Corporation (NYSE:PVA). According to the filing, the investment firm acquired around 3.7 million Common Shares at the end of 2014. The fund now holds a position of 4.3 million shares in Penn Virginia, representing 6% of the company’s outstanding stock.
Brett Hendrickson launched Nokomis Capital in 2008 with a starting capital of just $4 million. Although the long/short hedge was launched in the midst of a turbulent economic situation, the firm was able to grow significantly, boasting $34 million in assets in 2010. This growth is attributed to Mr. Hendrickson’s ability to trade stocks, something he was already demonstrating at 23 years of age in his position as director of research for a Los Angeles based brokerage firm. In line with its manager’s declared preference for companies “that make things you can touch and feel”, Nokomis Capital has fundamental focus and tends to avoid equities involved in financial services or health care. Furthermore, it seeks to acquire equities oriented towards value and growth, employing a combination of quantitative and qualitative analysis with a bottom up approach. Dallas, Texas based hedge fund boasts an equity portfolio valued at around $379 million, of which 46% is invested in stocks belonging to the information technology sector. According to its last 13F filing, Nokomis Capital’s largest positions, and thus top picks for the third quarter, were Xcerra Corp (NASDAQ:XCRA), Telenav Inc (NASDAQ:TNAV), and Kirkland’s, Inc. (NASDAQ:KIRK).
Penn Virginia Corporation (NYSE:PVA) is an oil and gas company that engages in the exploration, development, and production of crude oil and natural gas within the United States. Nokomis Capital entered a new position in the company during the third quarter with the purchase of 534,500 shares. Due to dramatic decline in oil prices, the stock has lost around 58% of its value over the past four months. Nevertheless, Penn Virginia was already deemed to be an undervalued company at the beginning of 2014 by major investors. George Soros’ Soros Fund Management gradually increased its stake in the oil and gas producer last year, turning into its second largest institutional investor with a position of around 6 million shares. At the time, the highly respected manager believed the stock to be undervalued, thus representing a great investment opportunity. Considering share prices are even lower today, the large increase in Nokomis Capital’s exposure to Penn Virginia – which is trading at a huge discount – could result in huge profits for the fund.
In addition to Nokomis Capital, a wide range of institutional investors are following the bullish stance displayed by Soros Fund Management towards Penn Virginia Corporation (NYSE:PVA). Amongst those waiting for share prices to recover is Israel Englander’s Millennium Management, which continues to own 3.3 million, after increasing its exposure by 62% during the third quarter. Ken Griffin’s Citadel Investment Group also disclosed a significant stake in the company, holding 2.7 million shares.
Despite the optimism displayed by hedge funds such as Nokomis Capital, Penn Virginia Corporation (NYSE:PVA) continues to struggle. The energy sector has been suffering from depressed prices for some time now, leading to sharply reduced margins and generating hefty losses for the companies active in this industry. Since the demand for natural gas for example, has been unable to keep up with the large increase in supply, the price of the commodity is currently hovering around the $3 per million Btu mark, down from $13.50 in 2008. As a major producer of natural gas, Penn Virginia continues to suffer from these circumstances.
Despite the spike in U.S. shale production, which has resulted in hefty turmoil for oil producers and energy stock throughout 2014, Nokomis Capital has reason to remain optimistic. Although the current situation seems dire, analysts are already projecting the energy sector to make a comeback. In fact, the consensus analyst price target for Penn Virginia Corporation (NYSE:PVA) is at around $9.50, while the stock is currently trading at around $5.30, meaning Nokomis Capital can benefit largely from its increased stake. If viewed as a long-term investment, the hedge funds betting on the company’s recovery could see profits rise even higher. Hence, by increasing its exposure to this largely undervalued stock, the investment firm managed by Brett Hendrickson seems to be expecting the energy sector to recover sometime this year.
Disclosure: Pablo Erbar holds no position in any stocks or funds mentioned.
