Shares of WPX Energy Inc (NYSE:WPX) have gained 3.33% in trading this morning after the independent natural gas and oil exploration and production firm announced that it will acquire privately held RKI Exploration & Production, LLC. The deal is valued at $2.35 billion, plus the assumption of $400 million of debt, and will give WPX access to the Permian basin of Texas and New Mexico, the fastest-growing and largest shale oil field in the U.S., where RKI is currently producing about 22,000 barrels of oil equivalent per day, more than half of which is oil. WPX plans to have six rigs, up from four, in the Permian basin by the end of 2015. The deal includes about $1.1 billion for the existing production at $50,000 per flowing barrel, and about $500 million for the established midstream infrastructure, leaving a total of $1.15 billion for the undeveloped locations, at an average of $12,500 per acre. When all RKI assets have been folded into the company, WPX Energy Inc (NYSE:WPX) anticipates that nearly a third of its output in 2016 will be comprised of oil, as opposed to the current 20%. To partly finance the deal, WPX has announced concurrent public offerings of $1.2 billion of senior unsecured notes, 27,000,000 shares of its common stock, and $300 million aggregate liquidation preference of its series A mandatory convertible preferred stock.
The market reaction to WPX Energy Inc (NYSE:WPX)’s announcement is in contrast to the decrease in enthusiasm from the smart money in the first quarter of the year, who clearly weren’t anticipating any such moves. WPX was in 30 hedge funds’ portfolios at the end of the first quarter of 2015, down from 33 hedge funds at the end of the previous quarter. The total value of holdings owned by hedge funds who were still long in WPX by the end of the first quarter among those Insider Monkey tracks also decreased by 7.05% to $404.48 million. However, it should be noted that the stock’s price declined by 6.02% in the first quarter, so the actual decline in holdings through selling of collective shares was minimal.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with exceptional knowledge and resources can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock-picking expertise. Thus, a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks, mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 80 percentage points and returning over 135%, while hedge funds themselves have collectively underperformed the market (read the details here).
Another area Insider Monkey follows is insider trades. These transactions can tell people whether certain key insiders of companies are betting on their stocks. For WPX Energy Inc, President and CEO Richard Muncrief bought 20,000 shares on March 16. There have been no sales of WPX shares by insiders in 2015.
Taking this into consideration, we’re going to review the latest key smart money activity concerning WPX Energy Inc.
Hedge fund activity in WPX Energy Inc (NYSE:WPX)
According to hedge fund experts at Insider Monkey, Carlson Capital, managed by Clint Carlson, holds the most valuable position in WPX Energy Inc (NYSE:WPX). Carlson Capital has a $61.9 million position in the stock made up of 5.66 million shares, comprising 0.7% of its 13F portfolio. On Carlson Capital’s heels is David E. Shaw of D.E. Shaw & Co., L.P., with a $58.3 million position of 5.33 million shares; 0.1% of its 13F portfolio is allocated to the stock. Some of the remaining hedgies that are bullish encompass David Costen Haley’s HBK Investments, Leon Cooperman’s Omega Advisors, and Mark McGoldrick and Jason Maynard’s Mount Kellett Capital Management.
Seeing as WPX Energy Inc (NYSE:WPX) has experienced declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of funds that decided to sell off their positions entirely heading into the second quarter. Interestingly, Anand Parekh‘s Alyeska Investment Group dropped the biggest investment of the 700 funds monitored by Insider Monkey, worth an estimated $10.6 million in stock, made up of 911,575 shares. Marc Lisker, Glenn Fuhrman and John Phelan of MSDC Management were right behind this move, as the fund managers said goodbye to 818,378 shares worth about $9.52 million.
Despite the slightly bearish outlook of hedge funds, given that the firm is reporting that it will be increasing its assets and output with the acquisition of RKI Exploration & Production, we believe a long position in WPX Energy Inc (NYSE:WPX) could be a good investment at the moment.
Disclosure: None
