Did Hedge Funds Make The Right Call On Patterson-UTI Energy, Inc. (PTEN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Patterson-UTI Energy, Inc. (NASDAQ:PTEN) based on that data and determine whether they were really smart about the stock.

Is Patterson-UTI Energy, Inc. (NASDAQ:PTEN) a bargain? The best stock pickers were taking a pessimistic view. The number of long hedge fund bets went down by 9 recently. Our calculations also showed that PTEN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). PTEN was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with PTEN holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to check out the new hedge fund action encompassing Patterson-UTI Energy, Inc. (NASDAQ:PTEN).

How are hedge funds trading Patterson-UTI Energy, Inc. (NASDAQ:PTEN)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in PTEN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey,  Renaissance Technologies has the largest position in Patterson-UTI Energy, Inc. (NASDAQ:PTEN), worth close to $29.5 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $11.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain  Kahn Brothers, John Overdeck and David Siegel’s Two Sigma Advisors and Jonathan Barrett and Paul Segal’s Luminus Management. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to Patterson-UTI Energy, Inc. (NASDAQ:PTEN), around 1.3% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to PTEN.

Judging by the fact that Patterson-UTI Energy, Inc. (NASDAQ:PTEN) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers that elected to cut their full holdings heading into Q4. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the largest stake of the 750 funds watched by Insider Monkey, worth close to $15.7 million in stock, and Ron Gutfleish’s Elm Ridge Capital was right behind this move, as the fund sold off about $4.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 9 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Patterson-UTI Energy, Inc. (NASDAQ:PTEN). These stocks are UMH Properties, Inc (NYSE:UMH), Morphic Holding, Inc. (NASDAQ:MORF), Zumiez Inc. (NASDAQ:ZUMZ), and CBTX, Inc. (NASDAQ:CBTX). All of these stocks’ market caps match PTEN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $70 million in PTEN’s case. Zumiez Inc. (NASDAQ:ZUMZ) is the most popular stock in this table. On the other hand UMH Properties, Inc (NYSE:UMH) is the least popular one with only 5 bullish hedge fund positions. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on PTEN as the stock returned 77.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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