Crude oil prices have plummeted to levels not seen in seven years, thanks to OPEC’s harmful tactic to shield its market share by abandoning its output ceiling of 30 million barrels per day (bpd). With oil prices consistently hitting new lows, it is not surprising that energy-related equities were plunging throughout the previous trading week. Furthermore, the International Energy Agency (IEA) warned on Friday that the global crude oil supply glut could get even worse in 2016, so there is definitely more pain ahead for energy equities in the forthcoming future, before it gets better. That being said, this article will discuss a bunch of cheap energy stocks that could theoretically explode in the future should they endure and survive the current low-commodity price environment. Before proceeding with the discussion of five cheap energy stocks and the hedge fund sentiment towards these stocks, there should be a clear distinction between low-priced stocks and cheap stocks in terms of valuation. The aforementioned five stocks are not necessarily attractive in terms of valuation, as they were merely filtered based on their monetary price and popularity among the elite investors in our database.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Southwestern Energy Company (NYSE:SWN)
– Investors with Long Positions (as of September 30): 38
– Aggregate Value of Investors’ Holdings (as of September 30): $569.33 Million
Southwestern Energy Company (NYSE:SWN) received a bit more attention from the hedge funds monitored by Insider Monkey during the third quarter, as the number of money managers with positions in the company increased to 38 from 33 throughout the quarter. Nevertheless, the value of their positions declined to $569.33 million from $750.35 million thanks to Southwestern Energy’s disappointing stock performance. The shares of the independent energy company that engages in natural gas and oil exploration, development and production have been on a steep slide since early May and are down by 78% so far in 2015. The high volatility in natural gas prices in recent years has impacted the company’s financials quite significantly. NYMEX natural gas prices have ranged between a high of $13.58 per MMBtu (British thermal units in millions) back in 2008 and a low of $1.91 per MMBtu in 2012. Meanwhile, January natural gas futures contracts are priced around $2.02 per MMBtu. Moreover, the company did not hedge its 2014-2015 oil and NGL production. Israel Englander’s Millennium Management owns 9.36 million shares of Southwestern Energy Company (NYSE:SWN) as of September 30.
WPX Energy Inc. (NYSE:WPX)
– Investors with Long Positions (as of September 30): 37
– Aggregate Value of Investors’ Holdings (as of September 30): $529.72 Million
The number of smart money investors from our database with stakes in WPX Energy Inc. (NYSE:WPX) climbed to 37 from 26 during the September quarter. Similarly, the value of their stakes grew to $529.72 million from $349.20 million quarter-over-quarter. It should be mentioned that these hedge fund vehicles had accumulated a whopping 34.00% of the company’s outstanding common stock by September 30. The independent natural gas and oil exploration and production company intends to reduce its geographic focus and increase returns, margins and cash flow in the upcoming years. For that reason, the company sold its international interests in Argentina, a substantial share of its Appalachian Basin operations, and its Powder River Basin properties. The company also seeks acquisition opportunities in the current depressed market, after acquiring privately-held RKI Exploration & Production LLC earlier this year. Shares of WPX Energy are down by 44% thus far in 2015. Steve Cohen’s Point72 Asset Management holds a 13.29 million-share position in WPX Energy Inc. (NYSE:WPX) as of September 30.
Chesapeake Energy Corporation (NYSE:CHK)
– Investors with Long Positions (as of September 30): 34
– Aggregate Value of Investors’ Holdings (as of September 30): $1.21 Billion
Chesapeake Energy Corporation (NYSE:CHK) also received more attention from the hedge fund industry during the September quarter, with the number of smart money investors long Chesapeaker growing to 34 from 33 during the three-month period. Expectedly, the overall value of these positions declined by roughly 30% during the period as shares struggled. Funds tracked by Insider Monkey owned 24.80% of the company’s outstanding shares, which are 78% in the red year-to-date, at the end of the latest quarter. At the end of September, Chesapeake cut its workforce by roughly 15% in an attempt to reduce costs. At the same time, Chesapeake anticipates operating a mere 14 rigs at the beginning of 2016, compared with an average of 65 rigs in 2014. There are also growing concerns about the company’s weak balance sheet, which might put even more weight on its stock performance. Activist investor Carl Icahn of Icahn Capital LP owns a 73.05 million-share stake in Chesapeake Energy Corporation (NYSE:CHK) as of the end of the third quarter.
California Resources Corp (NYSE:CRC)
– Investors with Long Positions (as of September 30): 31
– Aggregate Value of Investors’ Holdings (as of September 30): $293.19 Million
A total of 31 hedge funds from our database were invested in California Resources Corp (NYSE:CRC) at the end of September, compared to 37 at the end of June. These smart money investors held 29.30% of the company’s shares at the end of the latest quarter, while the value of their investments in the company shrank heavily, to $293.19 million from $703.87 million quarter-over-quarter. The independent oil and natural gas exploration and production company sells all of its crude oil in the California markets, and generally receives a premium associated with international waterborne-based prices (California primarily imports oil as a result of the energy deficit in the state). Nevertheless, the low crude oil-price environment has put significant weight on the company’s stock performance, as there are growing concerns about the company’s relatively week balance sheet. Thus, the company’s hedging activities are pivotal for implementing its capital investment program and for its ability to satisfy credit facility covenants. George Soros’ Soros Fund Management reported owning 9.12 million shares of California Resources Corp (NYSE:CRC) via its latest 13F filing.
Weatherford International Plc (NYSE:WFT)
– Investors with Long Positions (as of September 30): 29
– Aggregate Value of Investors’ Holdings (as of September 30): $598.31 Million
Weatherford International Plc (NYSE:WFT) shares are down by 22% so far this year, but several financial hubs have great expectations for the company’s future financial performance. At the end of October, Oppenheimer reiterated its ‘Outperform’ rating on the stock and cut its price target to $13 from $14, which suggests upside potential of 46%. Meanwhile, the stock lost some of its appeal among the smart money monitored by our team in the third quarter, as the number of hedge funds with stakes in the company declined to 29 from 37 during the period. By the same token, the value of their investments dropped to $598.31 million from $840.96 million. The provider of products, equipment and services to the oil and natural gas exploration and production industry, has been severely impacted by the depressed oil and gas industry in 2015. As a result, the company completed a headcount reduction of 11,000 through the end of September and increased its targeted headcount reduction to 14,000 during the third quarter. Weatherford anticipates annualized savings of $803 million from these cost-cutting efforts. Israel Englander’s Millennium Management owns 14.92 million shares of Weatherford International Plc (NYSE:WFT) as of the end of the third quarter.