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5 Power-Packed Energy Stock Picks From Prescott Group

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).

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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).

Phil Frohlich
Phil Frohlich
Prescott Group Capital Management

#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.

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#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.

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Three more energy stock ideas of Prescott Group are discussed on the next page.

#3 Canadian Solar Inc. (NASDAQ:CSIQ),

Shares held (as of September 30): 215,500

Total Value (as of September 30): $3.58 million

Percent of Portfolio (as of September 30): 0.86%

During the third trimester, Prescott acquired 101,000 shares of Canadian Solar Inc. (NASDAQ:CSIQ). The firm initiated a position in the $1.29 billion solar power company during the March quarter. Shares of the company have depreciated by nearly 4% so far this year, however things appear to be turning around. The company recently upped its guidance for the third quarter, the results from which it will post on November 10, thanks to rising demand. Revenues are now expected in the $805 million-to-$815 million range compared with just $616.1 million previously anticipated. Among over 700 hedge funds that we track, 32 had investments worth $243.95 million in the company, representing 15.4% of Canadian Solar Inc. (NASDAQ:CSIQ)’s outstanding shares at the end of June.

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#2 EQT Corporation (NYSE:EQT)

Shares held (as of September 30): 65,000

Total Value (as of September 30): $4.21 million

Percent of Portfolio (as of September 30): 1.02%

This new position in EQT Corporation is now one of Prescott’s top bets in the energy sector. In its financial results for the third quarter, EQT Corporation (NYSE:EQT) delivered a net loss per share of $0.33, which missed estimates by $0.15. However, revenues of $577.01 million were $95.01 million higher than expectations. Although revenues were 27% higher than last year, they were more than offset by a 55% lower realized sales price. On the bright side, the company’s midstream segment performed extremely well and revenues increased by 17% from the same quarter of last year, while at the same time, per unit expenses dropped by 14%. Millennium Management led by Israel Englander held some 3.07 million shares of EQT Corporation (NYSE:EQT) on June 30.

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#1 Unit Corporation (NYSE:UNT)

Shares held (as of September 30): 462,965

Total Value (as of September 30): $5.21 million

Percent of Portfolio (as of September 30): 1.26%

Another new holding and Prescott’s top energy pick is Unit Corporation (NYSE:UNT), whose stock price has fallen by over 50% this year. However, shares jumped by 30% in early October when the company raised its guidance for the full year, so the investment has proven to be a successful one so far for the firm. The production growth in Unit Corporation’s oil & gas segment is now expected to land between 6%-and-8%, in contrast to the 2%-to-4% range provided earlier. Moreover, capital expenditures were also reduced by $30 million from prior expectations. The momentum continued into its earnings, as the company beat both the top and bottom line estimates for its recently-reported third quarter financial results. Chuck Royce‘s Royce & Associates held more than 4.54 million shares of the company at the end of June.

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Disclosure: None

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