Here is What Hedge Funds Think About Independence Contract Drilling Inc (ICD)

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by more than 6 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Independence Contract Drilling Inc (NYSE:ICD).

Is Independence Contract Drilling Inc (NYSE:ICD) a worthy investment now? The smart money is turning bullish. The number of bullish hedge fund bets went up by 1 in recent months. Our calculations also showed that icd isn’t among the 30 most popular stocks among hedge funds. ICD was in 13 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with ICD holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Phill Gross, Adage Capital Management

We’re going to take a glance at the fresh hedge fund action regarding Independence Contract Drilling Inc (NYSE:ICD).

Hedge fund activity in Independence Contract Drilling Inc (NYSE:ICD)

Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in ICD a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

No of Hedge Funds with ICD Positions

More specifically, MSDC Management was the largest shareholder of Independence Contract Drilling Inc (NYSE:ICD), with a stake worth $52.1 million reported as of the end of March. Trailing MSDC Management was MSD Capital, which amassed a stake valued at $12.4 million. Birch Grove Capital, Adage Capital Management, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Now, specific money managers were breaking ground themselves. MSD Capital, managed by Glenn Fuhrman and John Phelan, established the most outsized position in Independence Contract Drilling Inc (NYSE:ICD). MSD Capital had $12.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new ICD position is Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks similar to Independence Contract Drilling Inc (NYSE:ICD). These stocks are Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG), Nemaura Medical Inc. (NASDAQ:NMRD), Leju Holdings Ltd (NYSE:LEJU), and RGC Resources, Inc. (NASDAQ:RGCO). This group of stocks’ market values are similar to ICD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DFRG 14 80979 1
NMRD 1 36 1
LEJU 2 1888 0
RGCO 1 416 0
Average 4.5 20830 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $96 million in ICD’s case. Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG) is the most popular stock in this table. On the other hand Nemaura Medical Inc. (NASDAQ:NMRD) is the least popular one with only 1 bullish hedge fund positions. Independence Contract Drilling Inc (NYSE:ICD) 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 ICD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ICD were disappointed as the stock returned -37.9% 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.