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Parsley Energy Inc (PE): Are Hedge Funds Right About This Stock?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Parsley Energy Inc (NYSE:PE) based on that data.

Parsley Energy Inc (NYSE:PE) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that PE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 44 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.

Phill Gross of Adage Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action encompassing Parsley Energy Inc (NYSE:PE).

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

At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in PE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of Parsley Energy Inc (NYSE:PE), with a stake worth $80.4 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $63.7 million. Encompass Capital Advisors, Holocene Advisors, and Millennium 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 6.99% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, designating 4.78 percent of its 13F equity portfolio to PE.

Since Parsley Energy Inc (NYSE:PE) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Zach Schreiber’s Point State Capital said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $41.3 million in stock, and David Alexander Witkin’s Beryl Capital Management was right behind this move, as the fund dropped about $19.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 7 funds heading into Q4.

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 FireEye Inc (NASDAQ:FEYE), BRF SA (NYSE:BRFS), John Bean Technologies Corporation (NYSE:JBT), and Youdao, Inc. (NYSE:DAO). 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
FEYE 32 159577 2
BRFS 14 34760 0
JBT 12 69622 -4
DAO 6 183674 3
Average 16 111908 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $438 million in PE’s case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand Youdao, Inc. (NYSE:DAO) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Parsley Energy Inc (NYSE:PE) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on PE as the stock returned 62.7% so far in Q2 (through May 22nd) 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.