It’s the first day of the week, and traders are anticipating the upcoming FOMC meeting in the middle of this month. Following Friday’s disappointing job report, few expect the Federal Reserve to raise interest rates. The expectations for interest rates to remain low for a longer period of time has softened the dollar and predictably increased the price of crude oil. Not surprisingly, several energy companies are on our list of trending stocks today, including Halliburton Company (NYSE:HAL), Baker Hughes Incorporated (NYSE:BHI), and CONSOL Energy Inc. (NYSE:CNX). Union Pacific Corporation (NYSE:UNP) and Alphabet Inc (NASDAQ:GOOG) are also on the list. Let’s take a closer look at why these stocks are trending today and how hedge funds have been trading them lately.
At Insider Monkey, we track around 760 hedge funds and other 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 the details here).
Ratings Agency Downgrades Halliburton and Baker Hughes
A few weeks after Halliburton Company (NYSE:HAL)‘s planned merger with Baker Hughes Incorporated (NYSE:BHI) unraveled, credit ratings agency Moody’s cut both energy service companies’ unsecured debt credit ratings to Baa1 from A2, citing an uncertain environment and moderate credit risks. As reasons to the downgrade, analysts at Moody’s pointed to Baker Hughes’ higher-than-historical leverage and ‘developing business model’, and cited Halliburton’s anticipated increase to debt leverage to over five-times debt-to-EBITDA in 2016 due to the combined effect of additional debt to finance the failed acquisition of Baker Hughes and the still-weak oilfield services market.
Although the debt downgrade is certainly not good news, this downgrade will be more of a lagging indicator, rather than a leading one if crude prices continue to rise. If that occurs, demand for oil services will increase, EBITDA will increase, and the debt ratios will look a lot better. If crude prices head lower, the Moody’s analysts may be right. Among the funds in Insider Monkey’s database, 54 investors owned shares of Halliburton Company (NYSE:HAL), while 43 were long Baker Hughes Incorporated (NYSE:BHI) at the end of the first quarter.
Einhorn Trims Stake in CONSOL
David Einhorn’s Greenlight Capital is taking some chips off the table on one of the fund’s biggest conviction bets. According to an SEC filing, Greenlight sold 7.0 million shares of CONSOL Energy Inc. (NYSE:CNX) at $15.01 a piece after the stock more than tripled from its 2016 lows. Greenlight had around 29.4 million shares on May 12. Although natural gas prices haven’t risen nearly as much as crude has, the sentiment around the commodity has improved. A total of 32 other funds tracked by Insider Monkey owned shares of CONSOL Energy Inc. (NYSE:CNX) at the end of the first quarter too.
On the next page, we examine why Union Pacific Corporation and Alphabet are in the spotlight.