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Is Phillips 66 (PSX) Going to Burn These Hedge Funds?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make a proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Is Phillips 66 (NYSE:PSX) a bargain? Money managers are selling. The number of long hedge fund bets shrunk by 2 in recent months. 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 Shire PLC (ADR) (NASDAQ:SHPG), Adobe Systems Incorporated (NASDAQ:ADBE), and FedEx Corporation (NYSE:FDX) to gather more data points.

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To most stock holders, hedge funds are viewed as unimportant, old financial vehicles of yesteryear. While there are greater than 8000 funds in operation at present, our experts hone in on the bigwigs of this group, approximately 700 funds. It is estimated that this group of investors directs the majority of all hedge funds’ total asset base, and by watching their matchless equity investments, Insider Monkey has come up with many investment strategies that have historically defeated Mr. Market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s review the recent action surrounding Phillips 66 (NYSE:PSX).

How are hedge funds trading Phillips 66 (NYSE:PSX)?

At the end of September, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 6% from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Berkshire Hathaway holds the biggest position in Phillips 66 (NYSE:PSX). Berkshire Hathaway has a $4.72 billion position in the stock, comprising 3.7% of its 13F portfolio. The second most bullish fund manager is D E Shaw, holding a $763.5 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass David Cohen and Harold Levy’s Iridian Asset Management, Steven Richman’s East Side Capital (RR Partners), and Cliff Asness’ AQR Capital Management.

Judging by the fact that Phillips 66 (NYSE:PSX) has experienced a falling interest from hedge fund managers, logic holds that there was a specific group of hedgies that slashed their positions entirely heading into Q4. At the top of the heap, Dan Loeb’s Third Point said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $261.8 million in stock. Larry Robbins’ fund, Glenview Capital, also sold off its stock, about $147.4 million worth of shares. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Phillips 66 (NYSE:PSX) but similarly valued. These stocks are Shire PLC (ADR) (NASDAQ:SHPG), Adobe Systems Incorporated (NASDAQ:ADBE), FedEx Corporation (NYSE:FDX), and The Southern Company (NYSE:SO). This group of stocks’ market values matches Phillips 66 (NYSE:PSX)’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHPG 43 2498587 -1
ADBE 42 4069926 3
FDX 53 4136169 1
SO 17 360541 -2

As you can see, these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $2.77 billion. That figure was $6.72 million in Phillips 66 (NYSE:PSX)’s case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand, The Southern Company (NYSE:SO) is the least popular one with only 17 bullish hedge fund positions. Phillips 66 (NYSE:PSX) 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, FedEx Corporation (NYSE:FDX) might be a better candidate to consider a long position.

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