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Should You Avoid Petroleo Brasileiro Petrobras SA (ADR) (PBR)?

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Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has experienced a decrease in enthusiasm from smart money in recent months.

According to most traders, hedge funds are seen as underperforming, outdated investment tools of years past. While there are over 8000 funds with their doors open at present, we hone in on the elite of this group, around 450 funds. It is estimated that this group oversees most of the smart money’s total asset base, and by watching their highest performing stock picks, we have unearthed a few investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year 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 trumped the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)Equally as key, positive insider trading activity is a second way to parse down the stock market universe. Obviously, there are many motivations for a bullish insider to get rid of shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several academic studies have demonstrated the valuable potential of this tactic if “monkeys” understand what to do (learn more here).

Now, let’s take a gander at the key action encompassing Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR).

Hedge fund activity in Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)

Heading into Q2, a total of 23 of the hedge funds we track were bullish in this stock, a change of -28% from the previous quarter. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly.

When looking at the hedgies we track, D E Shaw, managed by D. E. Shaw, holds the biggest position in Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). D E Shaw has a $50.5 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $30.6 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds that are bullish include Daniel S. Och’s OZ Management, Jason Adler’s AlphaBet Management and Cliff Asness’s AQR Capital Management.

Because Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds who were dropping their full holdings in Q1. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of the 450+ funds we monitor, worth about $54.5 million in stock., and Shane Finemore of Manikay Partners was right behind this move, as the fund sold off about $40.3 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 9 funds in Q1.

What have insiders been doing with Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)?

Insider buying is best served when the company in focus has seen transactions within the past half-year. Over the latest six-month time frame, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). These stocks are ENSCO PLC (NYSE:ESV), Transocean LTD (NYSE:RIG), Seadrill Ltd (NYSE:SDRL), , and Cenovus Energy Inc (USA) (NYSE:CVE). This group of stocks are in the oil & gas drilling & exploration industry and their market caps resemble PBR’s market cap.

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