Hedge Funds Have Never Been More Bullish On Precision Drilling Corp (PDS)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Precision Drilling Corp (NYSE:PDS).

Is Precision Drilling Corp (NYSE:PDS) a first-rate investment right now? The best stock pickers are taking an optimistic view. The number of long hedge fund bets improved by 2 lately. Our calculations also showed that pds isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s go over the key hedge fund action encompassing Precision Drilling Corp (NYSE:PDS).

What does smart money think about Precision Drilling Corp (NYSE:PDS)?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in PDS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PDS Positions

More specifically, Mountain Lake Investment Management was the largest shareholder of Precision Drilling Corp (NYSE:PDS), with a stake worth $14 million reported as of the end of March. Trailing Mountain Lake Investment Management was Encompass Capital Advisors, which amassed a stake valued at $9.4 million. Arrowstreet Capital, Point72 Asset Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in Precision Drilling Corp (NYSE:PDS). Point72 Asset Management had $3.1 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new PDS investors: Jon Bauer’s Contrarian Capital, Jim Simons’s Renaissance Technologies, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s now take a look at hedge fund activity in other stocks similar to Precision Drilling Corp (NYSE:PDS). We will take a look at Modine Manufacturing Company (NYSE:MOD), Banc of California, Inc. (NYSE:BANC), Weatherford International plc (NYSE:WFT), and Ballard Power Systems Inc. (NASDAQ:BLDP). This group of stocks’ market caps resemble PDS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MOD 17 69889 0
BANC 15 92220 -2
WFT 15 38444 -7
BLDP 3 367 1
Average 12.5 50230 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $37 million in PDS’s case. Modine Manufacturing Company (NYSE:MOD) is the most popular stock in this table. On the other hand Ballard Power Systems Inc. (NASDAQ:BLDP) is the least popular one with only 3 bullish hedge fund positions. Precision Drilling Corp (NYSE:PDS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PDS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PDS were disappointed as the stock returned -28% during the same period 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 13 of these stocks already outperformed the market so far in Q2.

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