Do Hedge Funds Love ProPetro Holding Corp. (PUMP)?

Is ProPetro Holding Corp. (NYSE:PUMP) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

ProPetro Holding Corp. (NYSE:PUMP) was in 22 hedge funds’ portfolios at the end of the third quarter of 2019. PUMP shareholders have witnessed a decrease in hedge fund interest in recent months. There were 24 hedge funds in our database with PUMP holdings at the end of the previous quarter. Our calculations also showed that PUMP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the key hedge fund action surrounding ProPetro Holding Corp. (NYSE:PUMP).

What does smart money think about ProPetro Holding Corp. (NYSE:PUMP)?

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in PUMP over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Encompass Capital Advisors held the most valuable stake in ProPetro Holding Corp. (NYSE:PUMP), which was worth $29.8 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $21.7 million worth of shares. Deep Basin Capital, Citadel Investment Group, and Millennium Management 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 Encompass Capital Advisors allocated the biggest weight to ProPetro Holding Corp. (NYSE:PUMP), around 2.04% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, earmarking 1.44 percent of its 13F equity portfolio to PUMP.

Since ProPetro Holding Corp. (NYSE:PUMP) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedge funds who were dropping their full holdings heading into Q4. At the top of the heap, Robert Hockett’s Covalent Capital Partners said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $2.5 million in stock. Noam Gottesman’s fund, GLG Partners, also cut its stock, about $2.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to ProPetro Holding Corp. (NYSE:PUMP). We will take a look at Hyster-Yale Materials Handling Inc (NYSE:HY), Republic Bancorp, Inc. (NASDAQ:RBCAA), The Gorman-Rupp Company (NYSE:GRC), and Zealand Pharma A/S (NASDAQ:ZEAL). All of these stocks’ market caps match PUMP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HY 14 33412 2
RBCAA 7 15262 1
GRC 9 43037 2
ZEAL 3 26137 1
Average 8.25 29462 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $152 million in PUMP’s case. Hyster-Yale Materials Handling Inc (NYSE:HY) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks ProPetro Holding Corp. (NYSE:PUMP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PUMP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PUMP were disappointed as the stock returned -5.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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