Should You Avoid Pampa Energia S.A. (PAM)?

Is Pampa Energia S.A. (NYSE:PAM) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Pampa Energia S.A. (NYSE:PAM) a great investment today? Money managers are getting less bullish. The number of bullish hedge fund positions fell by 2 recently. Our calculations also showed that PAM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PAM was in 10 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with PAM holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the key hedge fund action encompassing Pampa Energia S.A. (NYSE:PAM).

How are hedge funds trading Pampa Energia S.A. (NYSE:PAM)?

Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in PAM 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.

Among these funds, Sculptor Capital held the most valuable stake in Pampa Energia S.A. (NYSE:PAM), which was worth $32.8 million at the end of the third quarter. On the second spot was Oaktree Capital Management which amassed $10.3 million worth of shares. Point State Capital, Highland Capital Management, and Marathon Asset 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 Marathon Asset Management allocated the biggest weight to Pampa Energia S.A. (NYSE:PAM), around 1.17% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to PAM.

Because Pampa Energia S.A. (NYSE:PAM) has witnessed falling interest from the smart money, logic holds that there exists a select few funds who sold off their full holdings by the end of the third quarter. Intriguingly, Jody LaNasa’s Serengeti Asset Management said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, worth about $18.5 million in stock. Edmond M. Safra’s fund, EMS Capital, also cut its stock, about $6.9 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Pampa Energia S.A. (NYSE:PAM). These stocks are S & T Bancorp Inc (NASDAQ:STBA), Armada Hoffler Properties Inc (NYSE:AHH), Knoll Inc (NYSE:KNL), and Waddell & Reed Financial, Inc. (NYSE:WDR). All of these stocks’ market caps are closest to PAM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STBA 10 24720 -1
AHH 14 91721 5
KNL 15 59319 -1
WDR 18 124549 0
Average 14.25 75077 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $65 million in PAM’s case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand S & T Bancorp Inc (NASDAQ:STBA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Pampa Energia S.A. (NYSE:PAM) is even less popular than STBA. Hedge funds dodged a bullet by taking a bearish stance towards PAM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PAM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PAM investors were disappointed as the stock returned -21.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

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