Hedge Funds Were Right to Ditch These Sinking Stocks, Part 1

#3 Whiting Petroleum Corp (NYSE:WLL)

 – Number of Hedge Fund Holders (as of September 30): 42
– Total Value of Hedge Fund Holdings (as of September 30): $767.2 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 24.60%

Many hedge funds got out of the way of a falling knife in Whiting Petroleum Corp (NYSE:WLL) in the third quarter, as the total number of elite funds long the stock fell to 42 by the end of September from 53 at the end of June. Whiting Petroleum Corp shares fell by over 50% in the same time frame and have fallen by another 26% in the fourth quarter as the price of WTI tanked on over-supply concerns. With Saudi Arabia pursuing its strategy of forcing out the weaker hands in a long-term bid to capture more market share, it’s not clear when WTI prices will recover. The U.S oil and gas industry could get some good news, however, if Washington lifts the crude export ban. According to multiple sources, negotiations to allow for just that are currently in progress.

#2 Magna International Inc. (USA) (NYSE:MGA)

 – Number of Hedge Fund Holders (as of September 30): 43
– Total Value of Hedge Fund Holdings (as of September 30): $1.33 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 6.80%

A net of nine elite funds were astute in their move to sell off Magna International Inc. (USA) (NYSE:MGA) in the third quarter, as shares of the company have fallen by over 13% in the fourth quarter. Magna International reported disappointing third quarter results as a strong dollar and weak global macro-economic environment weighed on performance. Sales missed estimates by $50 million and gross margin fell by 30 basis points. Guidance was also a bit soft, with the company expecting total sales of $31.3 billion-to-$32.6 billion and an operating margin of 7.7%. Nevertheless, 43 elite funds still own the stock, with Cliff Asness‘ AQR Capital Management among them.

#1 Devon Energy Corp (NYSE:DVN)

 – Number of Hedge Fund Holders (as of September 30): 48
– Total Value of Hedge Fund Holdings (as of September 30): $1.79 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 11.80%

A net of eight elite funds sold out of their positions in Devon Energy Corp (NYSE:DVN) during the third quarter, which may come as little surprise given that Devon shares fell by 37.3% from June 30-to-September 30. They have also fallen by another 9% in the third quarter. With the low WTI and natural gas prices, meaningful profits will be difficult to come by for the foreseeable future. While oil prices can’t stay low forever as non-OPEC production declines and crude demand grows by 1.0-to-1.5 million bpd per year, it’s difficult to be bullish at the current time given the impending Iranian crude coming onto the market and the weakening yuan. Legg Mason Capital Management, now a part of ClearBridge, was long 1.68 million shares of Devon Energy at the end of the third quarter.

Disclosure: None