Given the historically cheap valuations in the energy sector, it’s not surprising that many smart money funds own shares of energy companies in their search for risk-adjusted out-performance. Although WTI has rallied over 80% since February, many analysts think there is more upside left as supply tightens and demand grows. Seeing as elite funds have recently filed their 13-F’s for the first quarter, let’s use those filings to take a closer look at the smart money’s favorite energy stocks, including Pioneer Natural Resources (NYSE:PXD), Exxon Mobil Corporation (NYSE:XOM), Anadarko Petroleum Corporation (NYSE:APC), Devon Energy Corp (NYSE:DVN), and Schlumberger Limited. (NYSE:SLB).
While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).
#5 Schlumberger Limited. (NYSE:SLB)
– Number of Hedge Fund Holders (as of March 31): 56
– Total Value of Hedge Fund Holdings (as of March 31): $1.31 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 1.40%
Schlumberger Limited. (NYSE:SLB) will be in prime position to benefit once crude prices rise. Due to the energy crash, the company has reduced the price of many of its services so that its customers can survive or maintain their dividends. Once crude prices come back, however, Schlumberger can raise its service prices and increase its margins. Although analyst estimate that the company will only earn $2.07 per share next year, Schlumberger’s normalized earnings potential is significantly higher than that, making the stock still cheap in the eyes of many elite funds. Billionaire Ken Fisher’s Fisher Asset Management raised its stake in Schlumberger by 1% during the first quarter to over 4.2 million shares.
#4 Devon Energy Corp (NYSE:DVN)
– Number of Hedge Fund Holders (as of March 31): 58
– Total Value of Hedge Fund Holdings (as of March 31): $1.41 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 11.70%
Although Devon Energy Corp (NYSE:DVN)’s shares are up by 13% year-to-date, analysts at Barclays are still bullish, with an ‘Overweight’ rating and a $38 per share price target, according to a recent note. The analysts like Devon’s quality assets in the Eagle Ford and STACK, and management’s attempts at improving the balance sheet by selling off non-core assets. Given the company’s quality assets, some investors think the company could be an acquisition target. Given the improving balance sheet, Devon is much more likely to survive if crude prices double dip. Billionaire Israel Englander’s Millennium Management boosted its position in the stock by nearly 190% to over 5.0 million shares during the first quarter.