Synergy Resources Corp (NYSEMKT:SYRG) posted disappointing results for its fiscal third quarter today, reporting a loss of $2.5 million, or $0.20 per basic and diluted share, down from net income of $7.2 million, or $0.09 per basic and diluted share, in the third fiscal quarter of 2014. The loss for the quarter ending May 31 includes a $3 million full cost ceiling impairment charge resulting from lower oil and gas prices, the firm noted. The Street was expecting earnings of $0.01 per share. The oil and gas exploration and production firm says that revenues for the third quarter increased by 1.4% to $26.0 million from $25.7 million in the same quarter last year. The growth comes from a 95% increase in production, primarily from the new horizontal wells brought online, and production from acquisitions and asset swaps with other operators, the firm said. This growth was offset, however, by a 48% decrease in the realized average selling price per barrel of oil equivalent, the energy company added.
The disappointing results for Synergy Resources Corp (NYSEMKT:SYRG)’s fiscal third quarter, stand in stark contrast to the level of enthusiasm displayed by hedge funds for the energy company during the first quarter of the year. At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a surge of 75% from one quarter earlier. This massive increase in hedge fund interest is also mirrored in the burgeoning of their total holdings. The value of those holdings increased by 65.36% to $129.16 million by the end of March 2015, versus $78.11 million at the end of December 2014. This growth is even more amplified by the 5.5% decline in the price of the company’s shares during the first three months of the year. Nonetheless, shares dipped slightly in the second quarter even before the latest news, as the energy sector perhaps hasn’t rebounded to the extent money managers expected.
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 80 percentage points, returning over 135% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
We also track insider trades to accurately deduce whether insiders of companies are also going long on their firms’ shares. Synergy Resources insiders did not make any purchases of shares in 2015. There were sales, however, the most recent being Director Robert W. Noffsinger III selling 100,000 shares total in two transactions at the start of last month.
Keeping this in mind, let’s take a look at the recent hedge fund action surrounding Synergy Resources Corp.
Hedge fund activity in Synergy Resources Corp (NYSEMKT:SYRG)
According to hedge fund intelligence website Insider Monkey, Ken Griffin‘s Citadel Investment Group had the largest position in Synergy Resources Corp (NYSEMKT:SYRG) of 4.68 million shares worth close to $55.4 million, corresponding to 0.1% of its total 13F portfolio. The second-most bullish hedge fund manager is Balyasny Asset Management, headed by Dmitry Balyasny, which held 1.2 million shares worth about $14.2 million; 0.1% of its 13F portfolio was also allocated to the stock. Other peers that are bullish include George Soros’ Soros Fund Management, Chuck Royce’s Royce & Associates, and Ben Gambill’s Tiger Eye Capital.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. It is notable that the Balyasny Asset Management position was entirely created during the first quarter and is the biggest position in Synergy Resources Corp (NYSEMKT:SYRG) made in that quarter. George Soros’ Soros Fund Management also initiated a $13.1 million position during the quarter of about 1.11 million shares. Other funds with new positions in the stock are Ben Gambill’s Tiger Eye Capital, Arvind Sanger’s GeoSphere Capital Management, and William Harnisch’s Peconic Partners LLC.
With hedge funds very bullish about the stock, we believe it’s a good chance to buy low on Synergy Resources Corp (NYSEMKT:SYRG) and that the company will be profitable once oil prices rebound.
Disclosure: None
