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Did Hedge Funds Make The Right Call On PDC Energy Inc (PDCE) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PDC Energy Inc (NASDAQ:PDCE) and determine whether hedge funds skillfully traded this stock.

PDC Energy Inc (NASDAQ:PDCE) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that PDCE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most investors, hedge funds are viewed as unimportant, old investment tools of the past. While there are over 8000 funds trading at the moment, We choose to focus on the crème de la crème of this group, around 850 funds. It is estimated that this group of investors control the majority of the hedge fund industry’s total capital, and by observing their inimitable stock picks, Insider Monkey has determined several investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

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At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s check out the recent hedge fund action encompassing PDC Energy Inc (NASDAQ:PDCE).

What have hedge funds been doing with PDC Energy Inc (NASDAQ:PDCE)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in PDCE a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is PDCE A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of PDC Energy Inc (NASDAQ:PDCE), with a stake worth $22.2 million reported as of the end of September. Trailing Citadel Investment Group was SailingStone Capital Partners, which amassed a stake valued at $13.1 million. Deep Basin Capital, Point72 Asset Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SailingStone Capital Partners allocated the biggest weight to PDC Energy Inc (NASDAQ:PDCE), around 7.35% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 2.99 percent of its 13F equity portfolio to PDCE.

Judging by the fact that PDC Energy Inc (NASDAQ:PDCE) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds who sold off their positions entirely heading into Q4. At the top of the heap, George McCabe’s Portolan Capital Management dropped the biggest position of the 750 funds followed by Insider Monkey, worth close to $10.8 million in stock. Robert Emil Zoellner’s fund, Alpine Associates, also sold off its stock, about $3.5 million worth. These transactions are important to note, as total hedge fund interest was cut by 7 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to PDC Energy Inc (NASDAQ:PDCE). These stocks are Oxford Industries, Inc. (NYSE:OXM), Bloom Energy Corporation (NYSE:BE), Cara Therapeutics Inc (NASDAQ:CARA), and Simulations Plus, Inc. (NASDAQ:SLP). This group of stocks’ market valuations are similar to PDCE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OXM 12 27638 0
BE 10 44648 -3
CARA 10 84410 -7
SLP 10 35925 -2
Average 10.5 48155 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $115 million in PDCE’s case. Oxford Industries, Inc. (NYSE:OXM) is the most popular stock in this table. On the other hand Bloom Energy Corporation (NYSE:BE) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks PDC Energy Inc (NASDAQ:PDCE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on PDCE as the stock returned 100.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.