Does Pacific Drilling SA (NYSE:PACD) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Hedge fund interest in Pacific Drilling SA (NYSE:PACD) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare PACD to other stocks including Grupo Supervielle S.A. (NYSE:SUPV), South Plains Financial, Inc. (NASDAQ:SPFI), and Nesco Holdings, Inc. (NYSE:NSCO) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most market participants, hedge funds are perceived as unimportant, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open today, We look at the masters of this group, approximately 750 funds. These money managers have their hands on the majority of the hedge fund industry’s total capital, and by paying attention to their first-class stock picks, Insider Monkey has revealed many investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s view the new hedge fund action encompassing Pacific Drilling SA (NYSE:PACD).
How have hedgies been trading Pacific Drilling SA (NYSE:PACD)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in PACD 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.
The largest stake in Pacific Drilling SA (NYSE:PACD) was held by Strategic Value Partners, which reported holding $78.1 million worth of stock at the end of September. It was followed by Avenue Capital with a $75.3 million position. Other investors bullish on the company included Abrams Capital Management, Whitebox Advisors, and Highbridge Capital Management. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Pacific Drilling SA (NYSE:PACD), around 24.59% of its 13F portfolio. Strategic Value Partners is also relatively very bullish on the stock, earmarking 20.11 percent of its 13F equity portfolio to PACD.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace).
Let’s go over hedge fund activity in other stocks similar to Pacific Drilling SA (NYSE:PACD). We will take a look at Grupo Supervielle S.A. (NYSE:SUPV), South Plains Financial, Inc. (NASDAQ:SPFI), Nesco Holdings, Inc. (NYSE:NSCO), and DRDGOLD Ltd. (NYSE:DRD). This group of stocks’ market valuations resemble PACD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SUPV | 5 | 12377 | -2 |
| SPFI | 7 | 10846 | -1 |
| NSCO | 11 | 22374 | -7 |
| DRD | 4 | 6630 | 1 |
| Average | 6.75 | 13057 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $212 million in PACD’s case. Nesco Holdings, Inc. (NYSE:NSCO) is the most popular stock in this table. On the other hand DRDGOLD Ltd. (NYSE:DRD) is the least popular one with only 4 bullish hedge fund positions. Pacific Drilling SA (NYSE:PACD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PACD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PACD were disappointed as the stock returned -27.1% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
