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Earthstone Energy, Inc. (ESTE): Hedge Funds In Wait-and-See Mode

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Earthstone Energy, Inc. (NYSE:ESTE) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds’ portfolios at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Tuniu Corporation (NASDAQ:TOUR), Carrols Restaurant Group, Inc. (NASDAQ:TAST), and Capital City Bank Group, Inc. (NASDAQ:CCBG) to gather more data points. Our calculations also showed that ESTE isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most traders, hedge funds are assumed to be unimportant, old financial vehicles of years past. While there are greater than 8000 funds with their doors open today, We choose to focus on the elite of this group, around 750 funds. It is estimated that this group of investors administer the lion’s share of the smart money’s total capital, and by following their inimitable equity investments, Insider Monkey has brought to light several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

ESTE_oct2019

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s take a look at the new hedge fund action encompassing Earthstone Energy, Inc. (NYSE:ESTE).

What have hedge funds been doing with Earthstone Energy, Inc. (NYSE:ESTE)?

At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ESTE over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Ken Griffin CITADEL INVESTMENT GROUP

When looking at the institutional investors followed by Insider Monkey, George McCabe’s Portolan Capital Management has the number one position in Earthstone Energy, Inc. (NYSE:ESTE), worth close to $1.5 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $0.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the second quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Earthstone Energy, Inc. (NYSE:ESTE) but similarly valued. These stocks are Tuniu Corporation (NASDAQ:TOUR), Carrols Restaurant Group, Inc. (NASDAQ:TAST), Capital City Bank Group, Inc. (NASDAQ:CCBG), and SpartanNash Company (NASDAQ:SPTN). This group of stocks’ market valuations are closest to ESTE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TOUR 4 23118 -1
TAST 20 97829 1
CCBG 3 6505 -1
SPTN 20 27535 4
Average 11.75 38747 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $3 million in ESTE’s case. Carrols Restaurant Group, Inc. (NASDAQ:TAST) is the most popular stock in this table. On the other hand Capital City Bank Group, Inc. (NASDAQ:CCBG) is the least popular one with only 3 bullish hedge fund positions. Earthstone Energy, Inc. (NYSE:ESTE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ESTE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESTE investors were disappointed as the stock returned -46.9% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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