5 Energy Stocks Hedge Funds Are Dumping Like Crazy

Seeing as the latest batch of 13F filings have been released and the energy sector is a hot topic heading into OPEC’s fateful meeting over production guidelines, we have created a list of energy stocks that many hedge funds exited from in the third quarter. Although hedge funds are not always right, it often pays to know how big and savvy institutions are collectively trading specific equities.

In this article, let’s examine more in depth Devon Energy Corp (NYSE:DVN), Antero Resources Corp (NYSE:AR), Southwestern Energy Company (NYSE:SWN), EQT Corporation (NYSE:EQT), and BP plc (ADR) (NYSE:BP) and the associated smart money movement among them.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

maradon 333/Shutterstock.com

EQT Corporation (NYSE:EQT)

– Number of Hedge Fund Shareholders (as of September 30): 25
– Total Value of Hedge Fund Holdings (as of September 30): $576.49 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 6.00%

Of the 742 funds in our database which filed 13Fs for the September 30 reporting period, 25 were long EQT Corporation (NYSE:EQT) at the end of the third quarter, down by 11 funds from a quarter earlier. One reason for the hedge fund exodus has been the rather soft natural gas prices in recent months. Although colder weather could boost prices in the near-term, some traders worry that Trump’s pro-coal stance could trim demand for natural gas. Profit taking could also be another reason for some hedge funds leaving, as shares of EQT are up by 34% year-to-date.

BP plc (ADR) (NYSE:BP)

– Number of Hedge Fund Shareholders (as of September 30): 30
– Total Value of Hedge Fund Holdings (as of September 30): $1.06 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 1.60%

A quarter of the funds in BP plc (ADR) (NYSE:BP) headed for the exits in Q3, leaving 30 funds holding positions at the end of September. While crude has nearly doubled from its February lows, the fundamentals for the commodity are still rather uncertain. If OPEC cannot iron out the supply-cut specifics at their November 30 meeting, some traders think Brent has as much as $10 per barrel downside from current levels (especially given that demand for crude is lower in winter). An uncertain crude picture makes BP’s 7% dividend less of a deal.

We’ll check out three more energy stocks that hedge funds were ditching in Q3 on the next page.

Southwestern Energy Company (NYSE:SWN)

– Number of Hedge Fund Shareholders (as of September 30): 37
– Total Value of Hedge Fund Holdings (as of September 30): $1.26 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 27.40%

Much like its natural gas peer EQT, Southwestern Energy Company (NYSE:SWN) was dumped by 11 funds that we track in the third quarter, leaving a total of 37 funds holding shares of the company at the end of September. Shares of the stock have been volatile due to the wildly fluctuating natural gas futures in recent months. Although coal could gain more market share under the Trump administration, bulls hope that Trump will also give the green light for more natural gas exports. If crude prices rise, LNG demand could increase and demand for natural gas domestically could head upwards, taking Southwestern’s stock with it.

Antero Resources Corp (NYSE:AR)

– Number of Hedge Fund Shareholders (as of September 30): 40
– Total Value of Hedge Fund Holdings (as of September 30): $1.58 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 18.80%

Like EQT and Southwestern, the number of funds in our system with holdings in Antero Resources Corp (NYSE:AR) fell by 11 quarter-over-quarter as of the end of September. Despite the hedge fund activity, Josh Silverstein of Deutsche Bank upgraded the stock to ‘Buy’ from ‘Hold’, noting that Antero’s hedges for 2017 insulate the company to a degree for the year, and that the long-term risk/reward for the equity has improved versus two quarters ago. Silverstein has a $30 per share price target on the stock, up from the previous $27 target.

Devon Energy Corp (NYSE:DVN)

– Number of Hedge Fund Shareholders (as of September 30): 50
– Total Value of Hedge Fund Holdings (as of September 30): $1.34 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 7.80%

50 funds tracked by Insider Monkey owned $1.34 billion worth of Devon Energy Corp (NYSE:DVN) shares on September 30, down from 61 funds with $1.48 billion in holdings on June 30. Profit taking could be one reason for some hedge funds leaving the stock, as shares of the E&P have soared by 40% year-to-date on the back of stronger crude prices and now trade for 28.65-times forward earnings estimates. Devon’s forward P/E ratio could fall, however, if OPEC irons out its production cut agreement.

Disclosure: None