Is SandRidge Energy Inc. (NYSE:SD) a good stock to buy right now? Mouth Kellett Capital Management filed an amended 13D filing today regarding SandRidge Energy. There isn’t much in the filing. The multi-strategy private investment firm focused on global value, special situations, and opportunistic investing didn’t sell any of its 25 million shares despite huge losses. Its holdings declined to 4.9% of SandRidge’s outstanding shares for the following reason:
“Pursuant to the Company’s (i) Quarterly Report for the quarterly period ended March 31, 2015, filed on Form 10-Q with the U.S. Securities and Exchange Commission (the “SEC”), as of May 1, 2015, there were 483,986,672 Common Shares issued and outstanding, and (ii) Current Report dated May 14, 2015, filed on Form 8-K with the SEC (the “May 14, 2015 Disclosure”), the Company entered into an exchange agreement with an existing holder of certain of the Company’s senior notes (the “Notes”) to exchange the Notes for 28,031,875 Common Shares upon the terms as more fully set forth in the May 14, 2015 Disclosure. On June 1, 2015, the Company’s investor relations representative confirmed to a representative of the Reporting Person that the transaction as set forth in the May 14, 2015 Disclosure was consummated. Thus, for the purposes of Rule 13d-3 under the Securities Exchange Act of 1934, the Reporting Person is deemed to beneficially own 4.9% of the Common Shares issued and outstanding as of the Filing Date.”
In this article we will take a look at the hedge fund sentiment to determine whether it is time to catch thsi falling knife. Based on the latest round of 13F filings hedge funds are becoming less confident. The number of bullish hedge fund positions shrunk by 4 during the first quarter.
Why do we care about hedge fund sentiment? Hedge funds have been underperforming the market for a very long time and they lost a lot of credibility in recent years because of this. However, this doesn’t mean that hedge funds aren’t skilled at picking winners. Hedge funds underperformed two main reasons. First, they are hedged. This almost guarantees that hedge funds will outperform in declining markets and underperform in bull markets. Second, they charge huge fees which reduces the net returns experienced by their investors. What we really care about the performance of hedge funds’ long portfolios. Our research have shown that the 15 most popular small-cap stocks among hedge funds significantly beat the market in back tests covering the 13 years between 1999 and 2012. We have been tracking the performance of these stocks in real-time. They returned 142% since August 2012 and beat the S&P 500 Index by 83 percentage points (see the details here).
With all of this in mind, let’s go over the latest action regarding SandRidge Energy Inc. (NYSE:SD).
What does the smart money think about SandRidge Energy Inc. (NYSE:SD)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of -17% from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were bullish about the stock.
Of the funds tracked by Insider Monkey, Fairfax Financial Holdings, managed by Prem Watsa, holds the most valuable position in SandRidge Energy Inc. (NYSE:SD). Fairfax Financial Holdings has a $90.6 million position in the stock, comprising 6.4% of its 13F portfolio. The second largest stake is held by Mount Kellett Capital Management, managed by Mark McGoldrick and Jason Maynard, which held a $44.9 million position; 21.1% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish consist of Leon Cooperman’s Omega Advisors, Dinakar Singh’s TPG-AXON Management LP and Thomas E. Claugus’s GMT Capital.
Due to the fact that SandRidge Energy Inc. (NYSE:SD) has witnessed a declining interest from the smart money, it’s easy to see that there exists a select few money managers who sold off their positions entirely at the end of the first quarter. Interestingly, Michael Zimmerman’s Prentice Capital Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $3.7 million in stock. J. Carlo Cannell’s fund, Cannell Capital, also sold off its stock, about $2.8 million worth. Billionaire Leon Cooperman and Dinakar Singh were among the large holders who cut their holdings significantly.
Overall, hedge fund sentiment clearly indicates that SandRidge Energy isn’t a good stock to buy right now.