Is Obsidian Energy Ltd. (OBE) Going To Burn These Hedge Funds ?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Obsidian Energy Ltd. (NYSE:OBE).

Is Obsidian Energy Ltd. (NYSE:OBE) the right pick for your portfolio? The best stock pickers are taking a bearish view. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that OBE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s review the recent hedge fund action surrounding Obsidian Energy Ltd. (NYSE:OBE).

What does smart money think about Obsidian Energy Ltd. (NYSE:OBE)?

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OBE over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is OBE A Good Stock To Buy?

Of the funds tracked by Insider Monkey, FrontFour Capital Group, managed by Stephen Loukas, David A. Lorber, Zachary George, holds the biggest position in Obsidian Energy Ltd. (NYSE:OBE). FrontFour Capital Group has a $3.2 million position in the stock, comprising 11.9% of its 13F portfolio. The second most bullish fund manager is Proxima Capital Management, managed by Youlia Miteva, which holds a $0.6 million position; the fund has 1% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Thomas E. Claugus’s GMT Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Alan S. Parsow’s Elkhorn Partners. In terms of the portfolio weights assigned to each position FrontFour Capital Group allocated the biggest weight to Obsidian Energy Ltd. (NYSE:OBE), around 11.9% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, designating 0.97 percent of its 13F equity portfolio to OBE.

Judging by the fact that Obsidian Energy Ltd. (NYSE:OBE) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds that elected to cut their positions entirely last quarter. Intriguingly, Stephen Loukas, David A. Lorber, Zachary George’s FrontFour Capital Group dropped the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $0.5 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $0 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Obsidian Energy Ltd. (NYSE:OBE) but similarly valued. We will take a look at FreightCar America, Inc. (NASDAQ:RAIL), Home Federal Bancorp Inc of Louisiana (NASDAQ:HFBL), Sonim Technologies, Inc. (NASDAQ:SONM), and Virco Mfg. Corporation (NASDAQ:VIRC). All of these stocks’ market caps match OBE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RAIL 10 9431 1
HFBL 1 2138 0
SONM 3 11246 -5
VIRC 3 5656 0
Average 4.25 7118 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $4 million in OBE’s case. FreightCar America, Inc. (NASDAQ:RAIL) is the most popular stock in this table. On the other hand Home Federal Bancorp Inc of Louisiana (NASDAQ:HFBL) is the least popular one with only 1 bullish hedge fund positions. Obsidian Energy Ltd. (NYSE:OBE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OBE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OBE were disappointed as the stock returned -42.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.