Hedge Fund Sentiment Turned Against These Energy Stocks in Q1

Crude oil prices plunged massively in the 20-month period leading up to the end of the March quarter on fears that global crude supplies were surging at a much higher rate than global demand. The price collapse has erased billions of dollars in revenue and earnings for energy companies, forcing them to abandon projects, cut spending, trim workforces, and delay investments in existing and new wells. However, oil prices have partially recovered from their 12-year low reached in February, mainly owing to signs that the global oil supply glut has started to waste away. Crude oil prices were in “slump” mode in the first half of the March quarter, but have embarked on an impressive rally beginning in the second half of the quarter and continuing to the present. Amid the volatile backdrop, the hedge funds tracked by Insider Monkey was heavily dumping several energy-related holdings during the first quarter, five of which we’ll examine in this article.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. Exxon Mobil Corporation (NYSE:XOM)

 – Investors with long positions (as of March 31): 60

 – Aggregate value of investors’ holdings (as of March 31): $2.50 Billion

The number of hedge fund vehicles monitored by Insider Monkey with long positions in Exxon Mobil Corporation (NYSE:XOM) dropped to 60 from 68 during the first quarter of the year, while the overall value of those positions shrank to $2.50 billion from $3.08 billion quarter-over-quarter. Exxon Mobil, the world’s largest energy company, is among the best performing components of the Dow Jones Industrial Average thus far in 2016, as its shares have gained 14% year-to-date. The company posted net income of $1.81 billion for the first quarter of the year, down sharply from $4.94 billion recorded for the same period of the prior year. In late April, Exxon Mobil’s Board of Directors declared a second-quarter cash dividend of $0.75 per share, up from the $0.73 per share dividend that it paid in the first quarter. The upped dividend currently has an annual yield of 3.37%, but investors should be aware that Exxon’s payout ratio greatly exceeds 100%, so that level of payout is unlikely to last long. The energy company paid $3.05 billion in dividends in the first quarter. Richard S. Pzena’s Pzena Investment Management cut its stake in Exxon Mobil Corporation (NYSE:XOM) by 18% during the first quarter of 2016, to 4.98 million shares.

#4. Marathon Petroleum Corp (NYSE:MPC)

 – Investors with long positions (as of March 31): 42

 – Aggregate value of investors’ holdings (as of March 31): $1.48 Billion

There were 42 asset managers tracked by the Insider Monkey team with equity investments in Marathon Petroleum Corp (NYSE:MPC) at the end of the first quarter, compared to 50 registered at the end of the prior quarter. Correspondingly, the value of those asset managers’ equity investments in Marathon Petroleum fell to $1.48 billion from $2.58 billion. The stock performance of the independent petroleum refining company, like other refiners in the industry, has been weighed on by weakness in gasoline cracks and capture so far in 2016. Analysts at Deutsche Bank believe Marathon Petroleum has the highest upside potential among refiners in the longer-term should crude oil prices reach $60-to-$65 per barrel, which would result in wider crude differentials. At the same time, Deutsche Bank also claims the company has the lowest downside risk in the near-term, so Marathon Petroleum seems to be in a relatively strong position for both short-term and long-term-oriented investors. D.E. Shaw & Co. L.P., founded by David E. Shaw, cut its position in Marathon Petroleum Corp (NYSE:MPC) by 35% during the first quarter, to 8.01 million shares.

On page two we discuss three more energy stocks that hedge funds were selling out of during the first quarter.

#3. Western Refining Inc. (NYSE:WNR)

 – Investors with long positions (as of March 31): 26

 – Aggregate value of investors’ holdings (as of March 31): $228.84 Million

While the number of hedgies invested in Western Refining Inc. (NYSE:WNR) declined to 26 from 34 during the March quarter, the aggregate value of those hedge funds’ equity investments in the company plummeted to $228.84 million from $375.47 million quarter-over-quarter. The 26 asset managers amassed nearly 9% of Western Refining’s outstanding shares. The crude oil refiner has seen its market value plummet by 40% since the beginning of 2016, partially due to a weaker-than-expected first-quarter earnings report. Western Refining’s first-quarter net sales and net income figures came in below analysts’ expectations because of lower-than-normal gasoline margins. The company’s net sales for the quarter were $1.46 billion, down from $2.32 billion posted a year earlier. Even so, the second quarter has shown promising signs of improvement for the industry and the company itself, thanks to strong gasoline demand and recovering southwest U.S gasoline margins. Steven Cohen’s Point72 Asset Management owns 969,000 shares of Western Refining Inc. (NYSE:WNR) as of the end of March.

#2. HollyFrontier Corp (NYSE:HFC)

 – Investors with long positions (as of March 31): 20

 – Aggregate value of investors’ holdings (as of March 31): $269.63 Million

The hedge fund sentiment towards HollyFrontier Corp (NYSE:HFC) declined meaningfully during the first quarter of the year, as the number of money managers in our system with stakes in the company dropped to 20 from 34 quarter-over-quarter. The dollar value of those stakes also shrank to a mere $269.63 million from a much higher value of $587.54 million. The independent petroleum refiner recently reached a new 52-week low of $25.80, after seeing its shares go down by nearly 33% since the start of the year. Shares of HollyFrontier are currently changing hands at around 7.7-times expected earnings, below the forward P/E multiple of 10.5 for the oil and gas refining and marketing sector. Gasoline margins have recovered substantially from first-quarter levels and are anticipated to continue strengthening on positive vehicle miles traveled data. The refiner currently pays out a quarterly dividend of $0.33 per share, which equates to an annual yield of 4.93%. Cliff Asness’ AQR Capital Management has 5.59 million shares of HollyFrontier Corp (NYSE:HFC) among its holdings as of March 31.

#1. EOG Resources Inc. (NYSE:EOG)

 – Investors with long positions (as of March 31): 33

 – Aggregate value of investors’ holdings (as of March 31): $631.34 Million

EOG Resources Inc. (NYSE:EOG) also fell out of favor with the hedge funds monitored by our team, as the number of them with long positions in the company plunged to 33 from 51 quarter-over-quarter. Meanwhile, the aggregate value of those long positions decreased to $631.34 million from $909.82 million during the March quarter. The shares of the U.S independent crude oil and natural gas company are up by 15% since the beginning of 2016. EOG Resources posted net operating revenue of $1.35 billion for the first quarter of 2016, down by $965 million year-over-year. Meanwhile, the company’s wellhead revenue, which represents revenue from the sales of EOG’s production of crude oil and condensate, NGLs, and natural gas, declined by $665 million year-over-year to $995 million due to both lower realized prices and decreased production. The management of EOG Resources is not anticipated to boost production even if crude oil prices reach the $60 price level. Ric Dillon’s Diamond Hill Capital reported ownership of 2.02 million shares of EOG Resources Inc. (NYSE:EOG) in its 13F for the March quarter.

Disclosure: None