Phil Frohlich‘s Prescott Group Capital Management primarily focuses on investing in small and mid-cap companies. At the end of the September quarter, the market value of the firm’s public equity portfolio stood at $414.66 million, according to its latest 13F filing with the SEC. The fund has made some interesting picks in the energy sector, which could serve as investment ideas for retail investors seeking to profit from the downtrodden sector in the future. We’ll share those top energy picks in this article, which encompass Unit Corporation (NYSE:UNT), EQT Corporation (NYSE:EQT), Canadian Solar Inc. (NASDAQ:CSIQ), Synthesis Energy Systems, Inc. (NASDAQ:SYMX), and Plains GP Holdings LP (NYSE:PAGP).
But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 3-year period beginning from September 2012 (read the details here).
#5 Plains GP Holdings LP (NYSE:PAGP)
Shares held (as of September 30): 135,051
Total Value (as of September 30): $2.36 million
Percent of Portfolio (as of September 30): 0.57%
Prescott Group added 135,051 shares of Plains GP Holdings LP (NYSE:PAGP) to its portfolio in the September quarter, opening a new long position in the stock. So far this year Plains’ stock has slumped by about 48%. The recovery of this Master Limited Partnership (MLP) to past levels is a big question mark given its abysmal third quarter financial results which caused the stock to crater further on November 4. Quarterly revenues of $5.55 billion significantly missed estimates, by $2.26 billion, while EPS of $0.14 was $0.02 short of expectations. Daniel S. Och‘s OZ Management is the largest stockholder of Plains GP Holdings LP (NYSE:PAGP) within our database, as it held nearly 8.13 million shares of the company at the end of June.
#4 Synthesis Energy Systems, Inc. (NASDAQ:SYMX)
Shares held (as of September 30): 3.22 million
Total Value (as of September 30): $3.15 million
Percent of Portfolio (as of September 30): 0.76%
The stock price of the $85.98 million provider of gasification technology is up by about 4.5% so far this year which is in direct contrast to the struggle of most energy companies. Prescott’s holding in the stock remained unchanged during the third quarter. Synthesis Energy Systems, Inc. (NASDAQ:SYMX) is well poised to exploit growth opportunities in China as the emerging economy continues its battle to protect the environment. The company’s technology uses coal in a much cleaner way and its clean syngas is also a cheaper alternative to imported LNG and natural gas. John Paulson‘s Paulson & Co topped our list of Synthesis Energy Systems, Inc. (NASDAQ:SYMX)’s investors, as it held 10.0 million shares of the company at the end of the second quarter.
Three more energy stock ideas of Prescott Group are discussed on the next page.