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Barclays’ Betting On These Energy Stocks, But Here’s What Hedge Funds Think

It has been a devastating year for energy stocks, with several large-scale energy companies incurring losses and small-scale companies facing extinction. Barclays PLC (ADR) (NYSE:BCS) has been able to identify the best energy companies with potential growth prospects in this difficult sector, with Cameron International Corporation (NYSE:CAM), Suncor Energy Inc. (USA) (NYSE:SU), and Valero Energy Corporation (NYSE:VLO) being among the top energy stock picks of the investment firm according to its recent Americas Top Picks List. We’ll take a look at these picks and see what the smart money thinks about them as well, based on their latest 13F filings.

Penn Virginia

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 135% over the last 34 months, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

Cameron International Corporation (NYSE:CAM) comes at the top of the list because of the changes it introduced to its manufacturing and execution processes. Barclays added in its report, “Following a number of restructuring and strategic initiatives, Cameron not only has emerged a stronger, more focused company, it is also ahead of its peers with regard to optimizing its cost structure and supply chain.” Cameron International Corporation (NYSE:CAM) announced leadership changes earlier this quarter, with Scott Rowe, President and COO of Cameron, replacing existing Chief Executive Officer, Jack Moore, in October. The analysis firm has issued a share price target of $61 on the stock, representing an upside of 16.50% from its existing share price. The shares of Cameron International Corporation (NYSE:CAM) have improved 4.89% year-to-date despite a slowdown in the energy sector. Smart money is bearish on the stock of Cameron International however, with only 31 hedge fund managers investing $1.03 billion in the company as of March 31, against previous quarter investments of $1.15 billion made by 36 hedge fund investors. Ken Griffin’s Citadel Investment Group is among the primary investors of Cameron International Corporation (NYSE:CAM), with 3.98 million shares valued at $179.50 million.

Barclays has included Suncor Energy Inc. (USA) (NYSE:SU) in its list of best energy stocks in America because of its strong cash flow model, which differentiates it from other plays in the industry. According to the analysis firm, Suncor is capable of generating cash flows exceeding $2.48 billion between 2015 and 2019, covering its annual dividend payout of $1.36 billion while growing its production by 5%. It is important to note that the company was able to generate cash flow of $1.48 billion from operations in the first quarter of 2015. Upon the release of its first quarter results, Steve Williams, Chief Executive Officer of Suncor Energy Inc (USA) (NYSE:SU), also mentioned the firm’s ability to generate cash flow. He further added, “Suncor’s ability to generate solid cash flow during the first quarter of 2015 demonstrates the strength of our integrated model and spending discipline in the current crude price environment.” Hedge funds tracked at Insider Monkey maintained a bullish outlook towards Suncor Energy Inc. (USA) (NYSE:SU) at the end of the first quarter, with aggregate investments of $1.47 billion from 33 investors against net investments of $1.37 billion from 31 hedge fund managers at the end of 2014. Warren Buffett’s Berkshire Hathaway held the biggest position in Suncor Energy among the hedge funds we track, with its 22.34 million shares having a market value of $653.86 million.

For investors looking for profit-making opportunities in the energy sector, Valero Energy Corporation (NYSE:VLO) might be the best option. The shares of Valero have grown 25.93% year-to-date despite the declining commodity prices. Barclays has included Valero Energy Corporation (NYSE:VLO) in its list because of the company’s commitment towards creating more value for its shareholders. The international energy company returned $531 million in cash to its stockholders during the first quarter of 2015 and the firm reiterated its target of $1 billion worth of dropdowns for the year. The hedge fund managers tracked by Insider Monkey maintained a positive outlook on Valero Energy Corporation (NYSE:VLO) during the first quarter. According to our analysis, 57 hedge managers held a position in the energy company with net investments of $2.66 billion at the end of the quarter. These figures are an improvement from the previous quarter when only 53 hedge fund investors had Valero Energy Corporation (NYSE:VLO) in their portfolios, with total holdings valued at $2.63 billion. It should be noted that Valero’s shares we up by more than 25% in the first quarter however, so the marginal increase in capital among funds means investors did cash some money out of the stock. David E. Shaw’s D. E. Shaw was among the largest shareholders of the company, with 9.46 million shares valued at $601.63 million.

Disclosure: None

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