Were Hedge Funds Right About ProPetro Holding Corp. (PUMP)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards ProPetro Holding Corp. (NYSE:PUMP).

ProPetro Holding Corp. (NYSE:PUMP) was in 23 hedge funds’ portfolios at the end of December. PUMP has experienced an increase in activity from the world’s largest hedge funds recently. There were 22 hedge funds in our database with PUMP positions at the end of the previous quarter. Our calculations also showed that PUMP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In today’s marketplace there are a large number of indicators market participants employ to value stocks. A couple of the most underrated indicators are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the top investment managers can trounce the S&P 500 by a significant amount (see the details here).

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding ProPetro Holding Corp. (NYSE:PUMP).

How have hedgies been trading ProPetro Holding Corp. (NYSE:PUMP)?

Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in PUMP a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in ProPetro Holding Corp. (NYSE:PUMP) was held by Deep Basin Capital, which reported holding $46.1 million worth of stock at the end of September. It was followed by Encompass Capital Advisors with a $45.2 million position. Other investors bullish on the company included Citadel Investment Group, Fisher Asset Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to ProPetro Holding Corp. (NYSE:PUMP), around 4.39% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, earmarking 4.18 percent of its 13F equity portfolio to PUMP.

As one would reasonably expect, some big names were breaking ground themselves. Alden Global Capital, managed by Randall Smith, established the most outsized position in ProPetro Holding Corp. (NYSE:PUMP). Alden Global Capital had $4.6 million invested in the company at the end of the quarter. Mark Broach’s Manatuck Hill Partners also initiated a $1.6 million position during the quarter. The other funds with new positions in the stock are Robert Hockett’s Covalent Capital Partners, Hoon Kim’s Quantinno Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

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 Star Bulk Carriers Corp. (NASDAQ:SBLK), Designer Brands Inc. (NYSE:DBI), Costamare Inc (NYSE:CMRE), and NexPoint Residential Trust, Inc. (NYSE:NXRT). This group of stocks’ market caps are closest to PUMP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBLK 16 559337 4
DBI 22 104453 0
CMRE 17 59859 5
NXRT 16 209366 5
Average 17.75 233254 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $223 million in PUMP’s case. Designer Brands Inc. (NYSE:DBI) is the most popular stock in this table. On the other hand Star Bulk Carriers Corp. (NASDAQ:SBLK) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks ProPetro Holding Corp. (NYSE:PUMP) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 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 -64.7% during the four months of 2020 (through May 1st) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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