With the S&P 500 up by just three tenths of a percentage point and many stocks still in the red for the day, shares of Oasis Petroleum Inc. (NYSE:OAS), Twitter Inc (NYSE:TWTR), GoPro Inc (NASDAQ:GPRO), and NCR Corporation (NYSE:NCR) are well in the green. Let’s find out why investors are buying each stock and see what hedge funds think of them over the longer term.
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 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 (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Although WTI forward contracts remain in the red, Williston Basin E&P Oasis Petroleum Inc. (NYSE:OAS) is up by 5% as investors become more optimistic on the company’s prospects. U.S oil production has declined by more than half-a-million barrels per day from their peak and will continue to decline so long as WTI trades for under $60 per barrel. As interest rates increase and more investors buy into the ‘lower for longer’ story line, money for growth and maintenance capital expenditures will leave the industry and decrease production even further. Lower non-OPEC production will eventually lead to Saudi Arabia deciding to cut production and a crude price recovery. Our data shows many hedge funds owning Oasis Petroleum Inc. (NYSE:OAS), with 26 of the elite funds in our database reporting stakes in the company as of the end of the third quarter, down slightly from the 28 funds long the stock on June 30.
In other news, Twitter Inc (NYSE:TWTR) shares have surged by 6.38% today after the company began testing promoted tweet ads to the half-a-billion site visitors who aren’t registered or logged in to the service. Although Twitter has less information about those users and their preferences, it will still be able to make money from those ads from a brute-force perspective (and thus should be able to better monetize its audience with the service). Given that shares of Twitter are down by 30% year-to-date, short covering could also be playing a part in today’s rally. Within our extensive database, hedge funds were not overly optimistic about Twitter Inc (NYSE:TWTR), with the number of elite funds long the stock dropping by 20 quarter-over-quarter, to 27 as of September 30.
On the next page, we examine why GoPro and NCR Corporation are surging.