Is PE A Good Stock To Buy According To Hedge Funds?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Parsley Energy Inc (NYSE:PE) changed recently.

Is PE a good stock to buy? Parsley Energy Inc (NYSE:PE) investors should be aware of a decrease in hedge fund sentiment of late. Parsley Energy Inc (NYSE:PE) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 52. There were 39 hedge funds in our database with PE holdings at the end of June. Our calculations also showed that PE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Adam Usdan of Trellus Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s view the recent hedge fund action surrounding Parsley Energy Inc (NYSE:PE).

Do Hedge Funds Think PE Is A Good Stock To Buy Now?

At the end of September, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in PE a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Deep Basin Capital was the largest shareholder of Parsley Energy Inc (NYSE:PE), with a stake worth $39 million reported as of the end of September. Trailing Deep Basin Capital was Two Sigma Advisors, which amassed a stake valued at $32.4 million. Adage Capital Management, Millennium Management, and SIR Capital Management 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 SIR Capital Management allocated the biggest weight to Parsley Energy Inc (NYSE:PE), around 5.42% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, designating 4.77 percent of its 13F equity portfolio to PE.

Because Parsley Energy Inc (NYSE:PE) has experienced a decline in interest from hedge fund managers, we can see that there exists a select few fund managers who were dropping their positions entirely in the third quarter. It’s worth mentioning that Todd J. Kantor’s Encompass Capital Advisors dropped the largest position of the 750 funds watched by Insider Monkey, valued at close to $43.9 million in stock. Zach Schreiber’s fund, Point State Capital, also sold off its stock, about $20.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Parsley Energy Inc (NYSE:PE). These stocks are Qualys Inc (NASDAQ:QLYS), Rackspace Technology, Inc. (NASDAQ:RXT), New York Community Bancorp, Inc. (NYSE:NYCB), Relay Therapeutics, Inc. (NASDAQ:RLAY), Penske Automotive Group, Inc. (NYSE:PAG), National General Holdings Corp (NASDAQ:NGHC), and ICU Medical, Inc. (NASDAQ:ICUI). This group of stocks’ market values are closest to PE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QLYS 19 114276 -8
RXT 15 143133 15
NYCB 28 218403 0
RLAY 18 733691 18
PAG 18 107356 -3
NGHC 25 489741 8
ICUI 31 295797 -1
Average 22 300342 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $281 million in PE’s case. ICU Medical, Inc. (NASDAQ:ICUI) is the most popular stock in this table. On the other hand Rackspace Technology, Inc. (NASDAQ:RXT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Parsley Energy Inc (NYSE:PE) is more popular among hedge funds. Our overall hedge fund sentiment score for PE is 74.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on PE as the stock returned 52.7% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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