Most retail investors already know that the nominal share price of a stock does not matter for the most part, what really matters is the quality of the business behind each stock. Nonetheless, small investors usually tend to focus on low-priced stocks simply because they are more affordable. In fact, the share prices of some blue chip stocks may actually hinder some smaller-scale investors from investing in those stocks, with Priceline Group Inc (NASDAQ:PCLN), which trades at over $1,345 per share being an extreme example. Investors of all types should bear in mind that many low-priced stocks have low prices for a reason, so each stock priced under $10 or $5 per share should be closely examined before committing to them. In terms of energy stocks, the U.S. oil benchmark reached the $40 level on Thursday for the first time in 2016, as crude oil prices have quickly rebounded by more than 50% from their lowest level in the past decade or so, which had been reached earlier this year. This means that most low-priced energy stocks have limited downside and vast upside potential at the moment, should crude oil prices continue their recovery path. With that in mind, let’s lay out a list of energy stocks priced under $10 which are the most favored by the hedge funds tracked by Insider Monkey.
At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
#5 California Resources Corp (NYSE:CRC)
– Hedge Funds with Long Positions (as of December 31): 29
– Value of Hedge Funds’ Holdings (as of December 31): $237.28 Million
The number of hedge funds in our system with stakes in California Resources Corp (NYSE:CRC) declined to 29 from 31 during the December quarter, while the value of those stakes shrank to $237.28 million from $293.19 million quarter-over-quarter. The funds invested in CRC had amassed approximately 26% of the company’s outstanding common stock as of December 31. The independent oil and natural gas exploration and production company, which operates properties solely within the State of California, has seen its shares gain 245% over the past month, thanks to recovering crude oil prices and the company’s freshly-revealed plan to tackle the depressed (but now improving) market conditions. Nonetheless, the stock is down by 74% over the past 12 months and is still down by 23% in 2016. California Resources Corp entered the fourth quarter with three drilling rigs running and finished the quarter with none running. The company plans to spend only $50 million on capital investments in 2016, which is down from the 2015 capital program of $401 million. Just recently, CRC executed an amendment to its credit facilities that is anticipated to offer adequate liquidity and covenant relief throughout 2016. The recent surge in energy stocks mainly reflects two key aspects: recovering crude oil prices and banks’ willingness to relax some debt covenants and obligations, which may allow energy companies to avoid near-term bankruptcies. George Soros’ Soros Fund Management cut its stake in California Resources Corp (NYSE:CRC) by 1.12 million shares in the fourth quarter, ending the year with 8.00 million shares.
