The Most Popular Penny Stocks in the Energy Sector Among Elite Hedge Funds

Penny stocks are stocks with very low stock prices (that is why the name) and low market capitalization. Institutional investors generally avoid these stocks as they are considered risky because of low liquidity and high bid ask spreads. In fact a number of large funds have rules to avoid stocks below a certain price and market capitalization threshold. Though penny stocks have a higher risk profile, they can also generate huge returns if some favourable news happens to the company. The Securities and Exchange Commission (SEC) defines a penny stock as a security that trades below $5  a share, is not listed on a major national exchange and fails to meet other specific criteria. In the article below, we look at the most popular penny stocks (that were trading at less than $1 at the end of September) in the energy sector among elite hedge funds.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

 

Gastar Exploration Inc. (NYSEMKT:GST) is an exploration and production company with its main business being development of natural gas assets in North America and Australia. Some large hedge funds added this stock to their portfolio during the quarter. Citadel Advisors bought 17,997 shares of the stock taking its total holding to $63,000 while Bridgeway Capital Management kept its $350,000 position unchanged. Advisor Group and Philip Hempleman’s Ardsley Advisory Partners were some of the other large hedge funds holding this stock. The stock has climbed up by more than 37% in the last 5 months and currently has a market value of $184 million. The company reported $13 million in reveneus for the third quarter, which was up 7% quarter on quarter. Net loss of $3.8 million was reported with a production of 5,900 barrels of oil equivalent (“Boe”) per day. The number of funds from our system, long in this stock remained constant at 9 quarter over quarter. They held 13.2%of the company’s float as of September 30th.

VAALCO Energy, Inc. (NYSE:EGY) is also a micro-cap stock engaged in the exploration of oil and gas in different countries such as Gabon, Angola, Equatorial Guinea and the United States. Atlanta Capital Group and Citadel Advisors added this stock to their portfolio during the quarter, while Cliff Asness’s AQR Capital Management reduced its position in the stock slightly retaining 75,683 shares of this stock. The stock has declined by more than 60% over the last one year and currently trades near its 52 week low price of 75 cents per share. The company reported profits of just $0.2 million in the third quarter and announced that it would close its operations in Angola. It also signed a letter of intent to sell its interests in two wells in the Hefley field in North Texas for $850,000. As per our records, 9 funds held shares worth $4.988 million in this stock at the end of the third quarter.

Ocean Rig UDW Inc. (NASDAQ:ORIG) is an offshore oil and gas drilling contractor that specializes in ultra-deep water drilling operations. This penny stock is currently trading at $1.48 with a market value of just $127 million. The company should receive a boost as the new Trump administration should favor offshore drilling operations for oil and gas companies. This has made the stock gain 28% over the last one month, as investors have become more optimistic about the company’s prospects going forward. Adage Capital Advisors and Arrowstreet Capital are two large Boston based hedge funds which have a large position in the stock. Citadel Advisors also has a holding in this penny stock. The number of funds from our database, having Ocean Rig UDW Inc. (NASDAQ:ORIG) In their portfolio declined to 8 from 11 during the June-September period. The value of their holdings also came down to $10.4 million in the third quarter from $45.9 million in the quarter earlier.

Bellatrix Exploration Ltd. (NYSE:BXE) is a small oil and gas exploration which explores fields mainly in Canada. Dallas based Anson Funds Management bought an extremely large position in this stock and held more than $27 million of the company’s shares at the end of the third quarter. Billionaire Howard Marks also initiated a $9 million position in the stock. Orange Capital, Proxima Capital and AQR Capital Management also held positions in this penny stock. The stock performance has been quite disastrous, with the stock price halving over the last one year. Analysts have an average rating of hold for this stock and expect it to report a full year loss of 31 cents per share in 2016. The company recently announced the appointment of Brent Eshleman as the new CEO. According to funds that we tarck at Insider Monkey, 5 hedge funds held stock worth $19.9 million by September end.

Triangle Petroleum Corporation (NYSEMKT:TPLM) is also in the business of oil and gas exploration like most of the companies mentioned above. It also operates in the oilfield services segment and has a miniscule market value of $20.7 million. The stock has declined by more than 65% year to trade, and trades at just 25 cents a share. Though most funds dumped this stock in the third quarter, Citadel Advisors bought 128,033 shares and $35,000 worth of this company’s stock. D.E. Shaw was another major hedge fund that bought more than 87,000 shares of this stock during the last quarter. Bridgeway Capital Management maintained its $75,000 holding in this company. The company’s financial results have been fluctuating wildly in the last few quarters. It reported revenues of $49 million in the third quarter which was up 10% from the earlier quarter. The company reported net income of $217 million after reporting huge losses in the previous 4 quarters. The number of funds from our system, having Triangle Petroleum Corporation (NYSEMKT:TPLM) in their portfolio remained constant at 5 quarter over quarter

Disclosure:None