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Is Pacific Drilling SA (PACD) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Pacific Drilling SA (NYSE:PACD).

Hedge fund interest in Pacific Drilling SA (NYSE:PACD) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare PACD to other stocks including Gulf Resources, Inc. (NASDAQ:GURE), SandRidge Energy Inc. (NYSE:SD), and Heat Biologics, Inc. (NASDAQ:HTBX) to get a better sense of its popularity.

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AVENUE CAPITAL

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the new hedge fund action regarding Pacific Drilling SA (NYSE:PACD).

Hedge fund activity in Pacific Drilling SA (NYSE:PACD)

At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PACD over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PACD A Good Stock To Buy?

Among these funds, Strategic Value Partners held the most valuable stake in Pacific Drilling SA (NYSE:PACD), which was worth $8.6 million at the end of the third quarter. On the second spot was Avenue Capital which amassed $8.3 million worth of shares. Abrams Capital Management, Highbridge Capital Management, and Whitebox Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Pacific Drilling SA (NYSE:PACD), around 6.79% of its 13F portfolio. Strategic Value Partners is also relatively very bullish on the stock, dishing out 2.71 percent of its 13F equity portfolio to PACD.

Due to the fact that Pacific Drilling SA (NYSE:PACD) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few hedgies that elected to cut their full holdings by the end of the first quarter. It’s worth mentioning that Steven Tananbaum’s GoldenTree Asset Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, valued at about $0.7 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Pacific Drilling SA (NYSE:PACD) but similarly valued. These stocks are Gulf Resources, Inc. (NASDAQ:GURE), SandRidge Energy Inc. (NYSE:SD), Heat Biologics, Inc. (NASDAQ:HTBX), and Strata Skin Sciences, Inc. (NASDAQ:SSKN). This group of stocks’ market values match PACD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GURE 1 1224 0
SD 12 9952 -2
HTBX 1 1025 -1
SSKN 3 5598 -1
Average 4.25 4450 -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 $4 million. That figure was $22 million in PACD’s case. SandRidge Energy Inc. (NYSE:SD) is the most popular stock in this table. On the other hand Gulf Resources, Inc. (NASDAQ:GURE) is the least popular one with only 1 bullish hedge fund positions. Pacific Drilling SA (NYSE:PACD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on PACD as the stock returned 41.9% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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