Hedge Funds Are Betting Big On These 5 Energy Stocks

Although oil prices are only half of what they were two years ago, many savvy investors believe that the worst has past and that the industry has nowhere to go but up in the medium-term, assuming OPEC gets its act together.

Given the potential for big gains if oil prices recover, Insider Monkey has comprised a list of some of the smart money’s favorite energy stocks. In this article, we’ll examine how they traded Pioneer Natural Resources (NYSE:PXD), Halliburton Company (NYSE:HAL), Devon Energy Corp (NYSE:DVN), Exxon Mobil Corporation (NYSE:XOM), and Schlumberger Limited. (NYSE:SLB) during the second quarter.

At Insider Monkey, we track around 750 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 the details here).

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#5 Schlumberger Limited. (NYSE:SLB)

– Number of Hedge Fund Shareholders (as of June 30): 55
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.84 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 1.90%

In the midst of the worst crude bear market in recent memory, Schlumberger Limited. (NYSE:SLB)’s management has done an admirable job in terms of cutting costs and improving efficiency to preserve profits. For its latest quarter, Schlumberger reported earnings of $0.23 per share, beating the consensus estimate by $0.02. Pretax operating margin was 10.4% and free cash flow was $0.9 billion, two numbers that many competitors only wish they had. If WTI and Brent trend higher, Schlumberger’s margins and cash flow will improve. In terms of hedge fund activity, the smart money in our database has mainly stuck with the world’s largest oil services company. Of the 749 hedge funds that we track which filed 13F’s for the June quarter, 55 were long Schlumberger Limited. (NYSE:SLB), down just one fund from the end of the previous quarter.

#4 Exxon Mobil Corporation (NYSE:XOM)

– Number of Hedge Fund Shareholders (as of June 30): 60
– Total Value of Hedge Funds’ Holdings (as of June 30): $3.02 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.80%

After falling sharply from the middle of 2014 through the end of 2015, Exxon Mobil Corporation (NYSE:XOM)’s shares have roared back this year and are within 10%-to-15% of their all-time highs. Although crude prices are around 50% of what they were two years ago, Exxon’s rally isn’t surprising from a dividend perspective. The company currently pays an annual dividend of $3 per share, which currently provides a yield of 3.44%. Given Exxon’s low production costs, its large downstream unit, and its rock solid balance sheet, Exxon’s dividend is among the safest and most attractive deals in the long interest rate environment.  Ken Fisher‘s Fisher Asset Management kept its stake in Exxon largely intact during the second quarter, trimming it by 1% to 4.53 million shares as of the end of June.

The three favorite energy stocks of hedge funds are revealed on the next page.

#3 Devon Energy Corp (NYSE:DVN)

– Number of Hedge Fund Shareholders (as of June 30): 61
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.48 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 7.80%

Although Devon Energy Corp (NYSE:DVN) might have made a mistake in terms of selling 28,000 acres of its Permian holdings to Pioneer Natural Resources in mid-June, the company did receive $435 million for the deal. The sale deleverages Devon and makes the stock a safer play in the long-run. Given its considerable attractive shale acreage elsewhere, Devon’s future growth prospects shouldn’t be overly hurt from the sale. The smart money is certainly a fan of Devon Energy. 61 hedge funds in our database had a long position in Devon Energy Corp (NYSE:DVN) at the end of the second quarter, up by three funds quarter-over-quarter.

#2 Halliburton Company (NYSE:HAL)

– Number of Hedge Fund Shareholders (as of June 30): 62
– Total Value of Hedge Funds’ Holdings (as of June 30): $2.27 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 5.80%

Analysts are bullish on Halliburton Company (NYSE:HAL), as 26 have ‘Buy’ equivalent ratings on the oil services company, while eight have ‘Hold’ ratings, and only two have ‘Sell’ ratings. The smart money shares analysts’ sentiment. 62 were long Halliburton Company (NYSE:HAL) at the end of the second quarter, up by eight funds from the end of the first quarter. Like Schlumberger, Halliburton will see more business if WTI and Brent prices rise. Shares of the company are up by 27% year-to-date.

#1 Pioneer Natural Resources (NYSE:PXD)

– Number of Hedge Fund Shareholders (as of June 30): 74
– Total Value of Hedge Funds’ Holdings (as of June 30): $3.56 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 14.40%

With 74 funds in our system holding shares of the company on June 30, up by 13 funds from March 31, Pioneer Natural Resources (NYSE:PXD) easily ranks as the smart money’s top energy pick. Given’s today’s bid-up-anything-related-to-the-Permian craze, Pioneer’s management made a savvy move in mid-June by purchasing 28,000 acres in the Midland Basin from Devon Energy for $435 million. Given today’s Permian valuations, that acreage would likely have cost considerably more. Due to its purchase, Pioneer plans to add 17 new rigs to the area, in a move that will likely increase its EBITDA and production for the full-year. Jim Simons‘ quant fund Renaissance Technologies was one of the new Pioneer shareholders during the second quarter, building a position of 427,393 shares as of June 30.

Disclosure: None