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Seadrill Ltd (SDRL) Spikes on Surging Oil Prices

Seadrill Ltd (NYSE:SDRL) has been one of the greatest beneficiaries of the rising oil prices today, as shares of the company have surged by 9.48%. Brent Crude is up by more than 1% on Wednesday afternoon, while WTI Crude is up by more than 0.6%. The gains also come ahead of the company’s first quarter earnings call, scheduled for Thursday morning. The Street is predicting that the company will post EPS of $0.38, down from $0.86 a year ago, on revenue of $902.13 million, down from $1.22 billion in the first quarter of 2015. The market may also still be digesting yesterday’s news that Statoil ASA (ADR) (NYSE:STO) will make a $61 million payment to Seadrill to cancel an offshore drilling contract between the two companies involving Seadrill’s semi-submersible drilling vessel West Hercules. While the news appeared to be a major blow at the time, after closer examination Seadrill may not actually lose all that much EBIDTA from the cancellation.

Is Seadrill Ltd (NYSE:SDRL) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from industry insiders. Seadrill Ltd (NYSE:SDRL) has seen an increase in activity from those investors of late. SDRL was in 22 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with SDRL positions at the end of the previous quarter. At the end of this article we will also compare SDRL to other stocks including Financial Engines Inc (NASDAQ:FNGN), MasTec, Inc. (NYSE:MTZ), and Oil States International, Inc. (NYSE:OIS) to get a better sense of its popularity.

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We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

Of the funds tracked by Insider Monkey, D. E. Shaw’s D E Shaw has the number one position in Seadrill Ltd (NYSE:SDRL), worth close to $31.3 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Aristeia Capital, managed by Robert Henry Lynch, which holds a $12.9 million position; 1.5% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management, and Philippe Laffont’s Coatue Management.

On the next page we’ll look at some funds that took up positions in Seadrill during Q1, as well as compare the stock to a handful of others with similar market caps.

Some big names have jumped into Seadrill Ltd (NYSE:SDRL) headfirst. Aristeia Capital created the biggest position in Seadrill Ltd (NYSE:SDRL). Aristeia Capital had $12.9 million invested in the company at the end of the quarter. Coatue Management also made a $7.4 million investment in the stock during the quarter. The other funds with brand new SDRL positions are Himanshu H. Shah’s Shah Capital Management, Joe DiMenna’s Zweig Dimenna Partners, and Boaz Weinstein’s Saba Capital.

Let’s go over hedge fund activity in other stocks similar to Seadrill Ltd (NYSE:SDRL). We will take a look at Financial Engines Inc (NASDAQ:FNGN), MasTec, Inc. (NYSE:MTZ), Oil States International, Inc. (NYSE:OIS), and Korn/Ferry International (NYSE:KFY). This group of stocks’ market caps are closest to SDRL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FNGN 10 39255 -2
MTZ 17 251964 -4
OIS 12 104678 -6
KFY 15 41836 -6

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $111 million in SDRL’s case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand Financial Engines Inc (NASDAQ:FNGN) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Seadrill Ltd (NYSE:SDRL) 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

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