Hedge Funds Are Crazy About SM Energy Co. (SM)

Is SM Energy Co. (NYSE:SM) undervalued? The best stock pickers are turning bullish. The number of long hedge fund positions inched up by 6 lately.

According to most traders, hedge funds are perceived as unimportant, old financial vehicles of the past. While there are more than 8000 funds with their doors open at the moment, we at Insider Monkey choose to focus on the top tier of this club, around 450 funds. Most estimates calculate that this group oversees the lion’s share of the hedge fund industry’s total capital, and by paying attention to their highest performing stock picks, we have figured out a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as important, positive insider trading sentiment is a second way to parse down the stock market universe. Obviously, there are a number of incentives for an insider to get rid of shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Many academic studies have demonstrated the impressive potential of this strategy if shareholders know where to look (learn more here).

Consequently, let’s take a gander at the latest action regarding SM Energy Co. (NYSE:SM).

What have hedge funds been doing with SM Energy Co. (NYSE:SM)?

Heading into Q2, a total of 23 of the hedge funds we track were long in this stock, a change of 35% from one quarter earlier. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially.

Of the funds we track, Steven Cohen’s SAC Capital Advisors had the most valuable position in SM Energy Co. (NYSE:SM), worth close to $183.4 million, accounting for 0.9% of its total 13F portfolio. On SAC Capital Advisors’s heels is Ken Griffin of Citadel Investment Group, with a $125.7 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers that are bullish include Dmitry Balyasny’s Balyasny Asset Management, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC and SAC Subsidiary’s Sigma Capital Management.

As one would reasonably expect, key hedge funds have jumped into SM Energy Co. (NYSE:SM) headfirst. First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, established the most outsized position in SM Energy Co. (NYSE:SM). First Pacific Advisors LLC had 51 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $18.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Brian Taylor’s Pine River Capital Management, Anthony Giammalva’s Sound Energy Partners, and Eric Sprott’s Sprott Asset Management.

Insider trading activity in SM Energy Co. (NYSE:SM)

Insider buying is most useful when the company we’re looking at has seen transactions within the past half-year. Over the last half-year time period, SM Energy Co. (NYSE:SM) has seen zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to SM Energy Co. (NYSE:SM). These stocks are WPX Energy Inc (NYSE:WPX), Kosmos Energy Ltd (NYSE:KOS), Gulfport Energy Corporation (NASDAQ:GPOR), Oasis Petroleum Inc. (NYSE:OAS), and Energen Corporation (NYSE:EGN). This group of stocks belong to the independent oil & gas industry and their market caps match SM’s market cap.

With the returns demonstrated by our tactics, everyday investors must always watch hedge fund and insider trading sentiment, and SM Energy Co. (NYSE:SM) shareholders fit into this picture quite nicely.

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