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Should I Buy ProPetro Holding Corp. (PUMP)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ProPetro Holding Corp. (NYSE:PUMP) and determine whether hedge funds had an edge regarding this stock.

Is ProPetro Holding Corp. (NYSE:PUMP) the right investment to pursue these days? Prominent investors were in an optimistic mood. The number of bullish hedge fund bets moved up by 5 recently. ProPetro Holding Corp. (NYSE:PUMP) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that PUMP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 13 hedge funds in our database with PUMP positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are dozens of formulas shareholders use to assess their holdings. Two of the less known formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best fund managers can beat the broader indices by a very impressive margin (see the details here).

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to check out the recent hedge fund action encompassing ProPetro Holding Corp. (NYSE:PUMP).

Hedge fund activity in ProPetro Holding Corp. (NYSE:PUMP)

At the end of June, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PUMP over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PUMP A Good Stock To Buy?

The largest stake in ProPetro Holding Corp. (NYSE:PUMP) was held by Fisher Asset Management, which reported holding $9 million worth of stock at the end of September. It was followed by Adage Capital Management with a $8.4 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to ProPetro Holding Corp. (NYSE:PUMP), around 0.56% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to PUMP.

As industrywide interest jumped, key hedge funds have jumped into ProPetro Holding Corp. (NYSE:PUMP) headfirst. Renaissance Technologies, assembled the biggest position in ProPetro Holding Corp. (NYSE:PUMP). Renaissance Technologies had $8.2 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $0.5 million position during the quarter. The other funds with brand new PUMP positions are Joel Greenblatt’s Gotham Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Donald Sussman’s Paloma Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ProPetro Holding Corp. (NYSE:PUMP) but similarly valued. We will take a look at El Pollo LoCo Holdings Inc (NASDAQ:LOCO), Allegiance Bancshares, Inc. (NASDAQ:ABTX), Camden National Corporation (NASDAQ:CAC), Origin Bancorp, Inc. (NASDAQ:OBNK), Tredegar Corporation (NYSE:TG), Ellington Financial Inc. (NYSE:EFC), and Eros International plc (NYSE:EROS). This group of stocks’ market valuations match PUMP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOCO 10 20267 1
ABTX 5 5302 -1
CAC 12 45871 2
OBNK 6 12081 1
TG 11 56654 1
EFC 8 42376 -3
EROS 10 32573 2
Average 8.9 30732 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $52 million in PUMP’s case. Camden National Corporation (NASDAQ:CAC) is the most popular stock in this table. On the other hand Allegiance Bancshares, Inc. (NASDAQ:ABTX) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks ProPetro Holding Corp. (NYSE:PUMP) is more popular among hedge funds. Our overall hedge fund sentiment score for PUMP is 82.5. 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 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately PUMP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PUMP were disappointed as the stock returned -21% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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