“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 PDC Energy Inc (NASDAQ:PDCE).
According to most investors, hedge funds are assumed to be worthless, old financial tools of yesteryear. While there are over 8000 funds in operation at the moment, Our researchers hone in on the elite of this club, approximately 750 funds. These hedge fund managers command the majority of the hedge fund industry’s total capital, and by shadowing their unrivaled stock picks, Insider Monkey has found a few investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let’s review the recent hedge fund action encompassing PDC Energy Inc (NASDAQ:PDCE).
Hedge fund activity in PDC Energy Inc (NASDAQ:PDCE)
At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PDCE over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in PDC Energy Inc (NASDAQ:PDCE) was held by Mangrove Partners, which reported holding $82.3 million worth of stock at the end of March. It was followed by Lion Point with a $62.9 million position. Other investors bullish on the company included Deep Basin Capital, Portolan Capital Management, and Nokomis Capital.
Due to the fact that PDC Energy Inc (NASDAQ:PDCE) has experienced falling interest from the smart money, it’s easy to see that there were a few hedgies that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest investment of the 700 funds tracked by Insider Monkey, worth about $25.2 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund sold off about $11.8 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PDC Energy Inc (NASDAQ:PDCE) but similarly valued. These stocks are National General Holdings Corp (NASDAQ:NGHC), Simpson Manufacturing Co, Inc. (NYSE:SSD), Adtalem Global Education Inc. (NYSE:ATGE), and Cactus, Inc. (NYSE:WHD). This group of stocks’ market valuations are similar to PDCE’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $213 million in PDCE’s case. Cactus, Inc. (NYSE:WHD) is the most popular stock in this table. On the other hand Adtalem Global Education Inc. (NYSE:ATGE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks PDC Energy Inc (NASDAQ:PDCE) is even less popular than ATGE. Hedge funds dodged a bullet by taking a bearish stance towards PDCE. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PDCE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PDCE investors were disappointed as the stock returned -17.1% during the same time frame 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 the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.