Is Energy Transfer Equity, L.P. (ETE) A Good Stock To Buy?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Energy Transfer Equity, L.P. (NYSE:ETE) to find out whether it was one of their high conviction long-term ideas.

Energy Transfer Equity, L.P. (NYSE:ETE) has experienced a decrease in activity from the world’s largest hedge funds of late. At the end of this article we will also compare ETE to other stocks, including Koninklijke Philips Electronics NV (ADR) (NYSE:PHG), Delphi Automotive PLC (NYSE:DLPH), and Dollar General Corp. (NYSE:DG) to get a better sense of its popularity.

According to most traders, hedge funds are perceived as slow, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open at the moment, Our researchers look at the top tier of this group, around 700 funds. It is estimated that this group of investors handle the lion’s share of the smart money’s total capital, and by following their first-class picks, Insider Monkey has unsheathed several investment strategies that have historically outpaced the market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to go over the latest action encompassing Energy Transfer Equity, L.P. (NYSE:ETE).

What have hedge funds been doing with Energy Transfer Equity, L.P. (NYSE:ETE)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Daniel S. Och’s OZ Management has the most valuable position in Energy Transfer Equity, L.P. (NYSE:ETE), worth close to $284.7 million, accounting for 1% of its total 13F portfolio. Coming in second is Perry Capital, led by Richard Perry, holding a $82.4 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Other peers that are bullish contain Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management, Jim Simons’ Renaissance Technologies and David Atterbury’s Whetstone Capital Advisors.

Due to the fact that Energy Transfer Equity, L.P. (NYSE:ETE) has experienced declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers who sold off their positions entirely last quarter. Interestingly, James Dinan’s York Capital Management sold off the largest investment of the 700 funds watched by Insider Monkey, totaling an estimated $162.3 million in stock. Robert Boucai’s fund, Newbrook Capital Advisors, also dumped its stock, about $40.3 million worth. These moves are important to note, as total hedge fund interest dropped by 6 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Energy Transfer Equity, L.P. (NYSE:ETE). These stocks are Koninklijke Philips Electronics NV (ADR) (NYSE:PHG), Delphi Automotive PLC (NYSE:DLPH), Dollar General Corp. (NYSE:DG), and Baxalta Inc (NYSE:BXLT). This group of stocks’ market values are closest to ETE’s market value.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $866 million, versus $710 million in ETE’s case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand Koninklijke Philips Electronics NV (ADR) (NYSE:PHG) is the least popular one with only 8 bullish hedge fund positions. Energy Transfer Equity, L.P. (NYSE:ETE) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DG might be a better candidate to consider a long position.