Is Parsley Energy Inc (PE) Worthy of Your Portfolio?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Parsley Energy Inc (NYSE:PE).

Is Parsley Energy Inc (NYSE:PE) a sound stock to buy now? The smart money seems to be in an optimistic mood, since the number of bullish hedge fund positions advanced by six during the third quarter. In this way, 47 funds tracked by Insider Monkey held shares of the company at the end of September. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as EPR Properties (NYSE:EPR), Weingarten Realty Investors (NYSE:WRI), and Opko Health Inc. (NYSE:OPK) to gather more data points.

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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s take a glance at the new action surrounding Parsley Energy Inc (NYSE:PE).

What does the smart money think about Parsley Energy Inc (NYSE:PE)?

A total of 47 funds tracked by Insider Monkey were long Parsley Energy at the end of the third quarter, an increase of 15% from the end of June. As you can see from the graph below, hedge fund interest in the stock has been continuously increasing over the last 5 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Stuart J. Zimmer’s Zimmer Partners has the biggest position in Parsley Energy Inc (NYSE:PE), worth close to $230 million, amounting to 6.2% of its total 13F portfolio. Sitting at the No. 2 spot is Israel Englander’s Millennium Management, with a $124.2 million position.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Passport Capital, managed by John Burbank, assembled the most valuable position in Parsley Energy Inc (NYSE:PE). Passport Capital had $85.6 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $61.2 million position during the quarter. The following funds were also among the new PE investors: Todd J. Kantor’s Encompass Capital Advisors, Neil Chriss’ Hutchin Hill Capital, and Ken Heebner’s Capital Growth Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Parsley Energy Inc (NYSE:PE) but similarly valued. We will take a look at EPR Properties (NYSE:EPR), Weingarten Realty Investors (NYSE:WRI), Opko Health Inc. (NYSE:OPK), and Axis Capital Holdings Limited (NYSE:AXS). All of these stocks’ market caps resemble PE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EPR 20 172099 -6
WRI 10 61668 0
OPK 20 56078 3
AXS 13 482259 2

As you can see these stocks had an average of 16 funds with long holdings at the end of September and the average amount invested in these stocks was $193 million, versus $1.14 billion in PE’s case. EPR Properties (NYSE:EPR) is the most popular stock in this table. On the other hand Weingarten Realty Investors (NYSE:WRI) is the least popular one with only 10 funds holding long positions. Compared to these stocks Parsley Energy Inc (NYSE:PE) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None