Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Parsley Energy Inc (NYSE:PE).
Is Parsley Energy Inc (NYSE:PE) a marvelous investment today? The best stock pickers are becoming more confident. The number of bullish hedge fund positions inched up by 4 lately. Our calculations also showed that PE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s view the new hedge fund action surrounding Parsley Energy Inc (NYSE:PE).
How have hedgies been trading Parsley Energy Inc (NYSE:PE)?
At the end of the fourth quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the third quarter of 2019. On the other hand, there were a total of 36 hedge funds with a bullish position in PE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Parsley Energy Inc (NYSE:PE), which was worth $163.6 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $126.9 million worth of shares. Millennium Management, Point72 Asset Management, and Holocene Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Parsley Energy Inc (NYSE:PE), around 7.56% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, earmarking 4.51 percent of its 13F equity portfolio to PE.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Parsley Energy Inc (NYSE:PE). Point72 Asset Management had $95.2 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also initiated a $41.3 million position during the quarter. The other funds with brand new PE positions are Matt Smith’s Deep Basin Capital, David Alexander Witkin’s Beryl Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Parsley Energy Inc (NYSE:PE) but similarly valued. We will take a look at Wyndham Hotels & Resorts, Inc. (NYSE:WH), ADT Inc.(NYSE:ADT), MDU Resources Group Inc (NYSE:MDU), and Zscaler, Inc. (NASDAQ:ZS). All of these stocks’ market caps resemble PE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WH | 44 | 960213 | 4 |
| ADT | 21 | 193550 | 5 |
| MDU | 30 | 355457 | 7 |
| ZS | 18 | 89966 | -3 |
| Average | 28.25 | 399797 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $1041 million in PE’s case. Wyndham Hotels & Resorts, Inc. (NYSE:WH) is the most popular stock in this table. On the other hand Zscaler, Inc. (NASDAQ:ZS) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Parsley Energy Inc (NYSE:PE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately PE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PE were disappointed as the stock returned -66.2% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
