Are Hedge Funds Losing Faith in Pioneer Energy Services Corp (PES)?

Before we spend days researching a stock idea, we like to take a look at how hedge funds and billionaire investors recently traded that stock. The S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. 63% of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Pioneer Energy Services Corp (NYSE:PES).

Is Pioneer Energy Services Corp ready to rally soon? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions shrunk by 3 in recent months, to 12. At the end of this article we will also compare Pioneer Energy Services Corp to other stocks including Dynamic Materials Corporation (NASDAQ:BOOM), AcelRx Pharmaceuticals Inc (NASDAQ:ACRX), and Cherokee Inc. (NASDAQ:CHKE) to get a better sense of its popularity.

If you’d ask most market participants, hedge funds are perceived as underperforming, old investment vehicles of yesteryear. While there are more than 8,000 funds trading at the moment, our experts look at the masters of this club, approximately 700 funds. These money managers watch over the lion’s share of the smart money’s total capital, and by keeping an eye on their inimitable stock picks, Insider Monkey has brought to light several investment strategies that have historically beaten Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to view the key action regarding Pioneer Energy Services Corp (NYSE:PES).

Hedge fund activity in Pioneer Energy Services Corp (NYSE:PES)

At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 20% decline from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or had already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Millennium Management, managed by Israel Englander, holds the most valuable position in Pioneer Energy Services Corp (NYSE:PES). Millennium Management has a $2.1 million position in the stock, comprising less than 0.1% of its 13F portfolio. Sitting in the 2 spot is Renaissance Technologies, holding a $1.3 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Remaining professional investment firms with similar optimism encompass Cliff Asness’ AQR Capital Management, D E Shaw, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Since Pioneer Energy Services Corp (NYSE:PES) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds that elected to cut their full holdings heading into Q4. Intriguingly, Neil Chriss’ Hutchin Hill Capital dumped the biggest investment of all the hedgies watched by Insider Monkey, worth close to $1.5 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dropped its stock, about $0.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Pioneer Energy Services Corp (NYSE:PES). We will take a look at Dynamic Materials Corporation (NASDAQ:BOOM), AcelRx Pharmaceuticals Inc (NASDAQ:ACRX), Cherokee Inc. (NASDAQ:CHKE), and Global Partner Acquisition Corp. (NASDAQ:GPAC). This group of stocks’ market caps match PES’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $5 million in PES’s case. AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) is the most popular stock in this table. On the other hand Cherokee Inc. (NASDAQ:CHKE) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Pioneer Energy Services Corp (NYSE:PES) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. However, the sliding sentiment and the fact that the remaining 12 investors have just $5 million invested in the stock are cause for caution.