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A Look At Smart Money’s Favorite Shale Plays

Although Saudi Arabia has tried its best to bankrupt them, many shale drillers are still alive and kicking. A combination of hedging and raising liquidity by selling assets/shares have helped many independents make it to $49 per barrel oil and given their cost cuts, many are also in more competitive shape than in 2014.

In this article, we take a closer look at some of the smart money’s favorite shale stocks, including Pioneer Natural Resources (NYSE:PXD), Devon Energy Corp (NYSE:DVN), Continental Resources, Inc. (NYSE:CLR), EOG Resources Inc (NYSE:EOG), and SM Energy Co (NYSE:SM).

Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).

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#5 SM Energy Co (NYSE:SM)

– Number of Hedge Fund Holders (as of March 31): 19
– Total Value of Hedge Fund Holdings (as of March 31): $179.37 million
– Hedge Fund Holdings as Percentage of Float (as of March 31): 14.10%

Analysts are pretty dividend about SM Energy Co (NYSE:SM). Of the 21 total analysts covering the stock, two have ‘Sell’ ratings, 14 have ‘Hold’ ratings, and five have ‘Buy’ ratings. The analysts’ hesitancy to recommend the stock as a ‘Buy’ is understandable. Shares of the company have already rallied almost 50% year-to-date, and WTI prices may need to rally more for the company’s valuation to be justified. Nevertheless, last week’s EIA numbers were solid, and crude prices are trending higher. If energy prices continue to the upside, look for analysts to raise their ratings on SM. Cliff Asness’ AQR Capital Management raised its position by 86% to slightly over 1.2 million shares at the end of March.

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#4 EOG Resources Inc (NYSE:EOG)

– Number of Hedge Fund Holders (as of March 31): 33
– Total Value of Hedge Fund Holdings (as of March 31): $631.34 million
– Hedge Fund Holdings as Percentage of Float (as of March 31): 1.60%

Although its stock hasn’t rallied year-to-date as much as some of its sector peers, EOG Resources Inc (NYSE:EOG)’s fundamentals are solid. According to management, EOG’s costs are around $15-$20 per barrel lower than many of the company’s peers and the company can earn triple digit returns on some wells if WTI prices rise to $60 per barrel or higher. EOG’s lower costs make it a safer play than more leveraged peers and the company’s large reserves make it a potential M&A participant. Nevertheless, the number of investors from our database long EOG Resources slid by 18 during the first quarter.

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