The Most Popular Penny Stocks in the Energy Sector Among Elite Hedge Funds

The slump in oil prices put a great deal of pressure on a large number of players in the energy market, pushing the stock price of many of them to multi-year lows. The shale boom that preceded the decline in crude prices prompted many energy companies to rack up huge debts in order to keep up with the competition and expand their operations. Instead, these companies found it difficult to create attractive cash flows for investors given low commodity prices. As investors sought refuge, these companies’ stocks got crushed, falling below $1.00 per share. Some of these penny stocks can still be found in the portfolios of top hedge funds and in this article we’ll take a look at the five of them that are the most popular.

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While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5 Triangle Petroleum Corporation (NYSEMKT:TPLM)

 – Investors with long positions (as of March 31): 8

 – Aggregate value of investors’ holdings (as of March 31): $1.09 million

Starting our top 5 is Triangle Petroleum Corporation (NYSEMKT:TPLM), a holding company that engages in oil exploration and production through a number of subsidiaries. Eight elite hedge funds in our database had this stock in their equity portfolios at the end of March, down from 12 registered three months earlier. Jim Simons‘ Renaissance Technologies dumped 21% of its stake in Triangle Petroleum Corporation (NYSEMKT:TPLM) but remains the largest shareholder among the eight funds long the stock, with 649,474 shares valued at $352,000. In April, the stock was downgraded by analysts at Johnson Rice to ‘Hold’ from the previous rating of ‘Buy’. Wells Fargo also reiterated its ‘Hold’ rating on the stock, which corresponds to the consensus among analysts. The consensus price target for Triangle Petroleum Corporation (NYSEMKT:TPLM) is $2.71 per share, which implies a rather robust premium of 1,255%, given yesterday’s closing price of $0.20 per share.

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#4 Key Energy Services, Inc. (NYSE:KEG)

 – Investors with long positions (as of March 31): 8

 – Aggregate value of investors’ holdings (as of March 31): $9.81 million

Next up is Key Energy Services, Inc. (NYSE:KEG), a rig-based well servicing contractor. At the end of the first quarter, the stock was held by eight of the funds followed by Insider Monkey, down from 11 a quarter prior. Mark Rachesky‘s MHR Fund Management holds 17.5 million shares of Key Energy Services, valued at $6.46 million on March 31, according to its latest 13F filing. At the end of April, Key Energy Services, Inc. (NYSE:KEG) announced that the US Justice Department would not be prosecuting the company for alleged foreign corruption involving its Mexico unit. The company also said it was in talks with the Securities and Exchange Commission to settle the agency’s probe in the same matter and is expecting a conclusion by the end of the second quarter. For the first quarter of 2016, Key Energy Services, Inc. (NYSE:KEG) reported a 58% decline in revenue to $111 million and an adjusted loss of $0.41 per share. Shares currently trade at just $0.28 and are down by 86% over the last year.

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On the next page we take a look at three more popular energy stocks that are trading below $1.00.

#3 EXCO Resources Inc (NYSE:XCO)

 – Investors with long positions (as of March 31): 10

 – Aggregate value of investors’ holdings (as of March 31): $127.62 million

Having reached an all-time low in August 2015, EXCO Resources Inc (NYSE:XCO) has been trending in a range between $0.50 and $2.00 per share since then, as oil prices took time to rebound. Hedge fund interest in the company did not undergo any dramatic change during the first quarter, with the number of long positions reported by funds that we track inching down to 10 from 11. It is important to note that these funds had control over 45.6% of EXCO Resources Inc (NYSE:XCO)’s common stock at the time of the filing. Howard Marks‘ fund, Oaktree Capital Management, holds a sizable position in EXCO Resources, unchanged during the quarter, amounting to 45.2 million shares worth approximately $44.7 million. On May 13, the management of EXCO Resources Inc (NYSE:XCO) said it was preparing to undertake some restructuring activities and the stock fell sharply as investors speculated that the company would go bust. They were wrong, however, as EXCO instead said that it had reduced the size of its board of directors, cut its spending budget by roughly 70%, and pledged to complete the cost-cutting program it initiated some time ago. Although the company is saddled with $1.4 billion in total debt, none of it matures before 2018, so EXCO could soar if commodity prices recover in the near future. Shares are currently trading hands at $0.98, down by 37% over the past year.

#2 Penn West Petroleum Ltd (USA) (NYSE:PWE)

 – Investors with long positions (as of March 31): 11

 – Aggregate value of investors’ holdings (as of March 31): $19.44 million

The battle for the top spot is a virtual dead heat between Penn West Petroleum Ltd (USA) (NYSE:PWE) and C&J Energy Services, Ltd. (NYSE:CJES), with both having attracted the attention of 11 of the hedge funds that Insider Monkey tracks, while having a nearly identical amount of money invested in them from those 11 funds. FrontFour Capital Group, run by Stephen Loukas, David A. Lorber and Zachary George, holds the largest position in Penn West Petroleum Ltd (USA) (NYSE:PWE) among the funds we follow, amounting to 13.8 million shares valued at $12.8 million according to its latest 13F filing. On May 16 the company released its first quarter earnings report, posting a loss of $72.9 million. Adjusted for restructuring costs, the loss stood at $0.14 per share, while revenue came in at $168.4 million. Penn West Petroleum Ltd (USA) (NYSE:PWE) said it may default on its loans at the end of the second quarter if it does not reach an agreement with its creditors to restructure its debt. The company also said it will continue to sell assets in order to reduce its debt load. Shares of Penn West Petroleum trade at $0.72, down by 63% in the last year.

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#1 C&J Energy Services, Ltd. (NYSE:CJES)

 – Investors with long positions (as of March 31): 11

 – Aggregate value of investors’ holdings (as of March 31): $19.47 million

Hedge fund sentiment towards C&J Energy Services, Ltd. (NYSE:CJES) was unchanged during the first three months of 2016, with 11 top funds having reported a stake in the company as of the end of March. Together these funds held 11.5% of the company’s common stock. Anand Parekh‘s Alyeska Investment Group holds a noteworthy position in this stock, amounting to 8.67 million shares worth $12.2 million at the end of the quarter. C&J Energy Services, Ltd. (NYSE:CJES) ended  Friday’s trading session at $0.55 per share, down by 96% over the last year. An affiliate of Nabors Industries Ltd. (NYSE:NBR), C&J Energy Services registered a loss of $428.4 million in the first quarter, which translates into $0.61 per share on an adjusted basis, ahead of analysts’ projections. Revenue came in at $269.6 million, missing analysts’ consensus estimate of $323.1 million.

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Disclosure: None