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).

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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.

#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.

#3 Continental Resources, Inc. (NYSE:CLR)

– Number of Hedge Fund Holders (as of March 31): 50
– Total Value of Hedge Fund Holdings (as of March 31): $754.21 million
– Hedge Fund Holdings as Percentage of Float (as of March 31): 6.70%

Continental Resources’ CEO Harold Hamm is eager to increase the company’s cash flow. Hamm recently told Bloomberg that his company will begin finishing some of the company’s drilled but uncompleted wells in the Bakken shale play. Those uncompleted wells cost less to finish than new wells and production from the wells will improve Continental’s cash flow noticeably. The number of funds tracked by us with holdings in Continental Resources, Inc. (NYSE:CLR) rose by 16 quarter-over-quarter to 50 at the end of March.

#2 Devon Energy Corp (NYSE:DVN)

– Number of Hedge Fund Holders (as of March 31): 58
– Total Value of Hedge Fund Holdings (as of March 31): $1.41 billion
– Hedge Fund Holdings as Percentage of Float (as of March 31): 11.70%

Devon recently divested $858 million in non-core assets to improve its balance sheet. Although some of the assets sold produce crude and gas, Devon’s overall production numbers won’t miss the divested properties. Due to management plowing a percentage of the funds garnered into capex, Devon expects its production from core-assets to be 540,000 to 560,000 BOE per day. That’s up 7,000 BOE per day from the previous guidance. A total of 58 funds had a bullish position in Devon Energy Corp (NYSE:DVN) at the end of the first quarter, up by 11 funds from the previous quarter.

#1 Pioneer Natural Resources (NYSE:PXD)

– Number of Hedge Fund Holders (as of March 31): 61
– Total Value of Hedge Fund Holdings (as of March 31): $3.18 billion
– Hedge Fund Holdings as Percentage of Float (as of March 31): 13.80%

Pioneer is getting bigger. The company was one of the parties that bought Devon’s non-core assets, with Pioneer specifically agreeing to purchase around 28,000 acres in the Permian’s Midland Basin for $435 million. Due to the acquisition, Pioneer expects its horizontal rig count in Northern Spraberry/Wolfcamp to jump to 17 from 12 and for its production growth to be a solid 13%-17% in 2017. With 61 funds from our database reporting stakes in Pioneer Natural Resources (NYSE:PXD) as of the end of March, Pioneer is the smart money’s favorite shale play on our list.

Disclosure: none