Hedge Funds Say Just One of These Three Tuesday Movers is Worth Investing In

As the markets are mixed on Tuesday, fueled by a surge in oil prices, among the crowd of stocks moving in different directions, shares of Encana Corporation (USA) (NYSE:ECA), Denbury Resources Inc. (NYSE:DNR), and Incyte Corporation (NASDAQ:INCY) stood out. Sometimes the market might overreact on some news, that’s why we have decided to see if hedge funds are bullish on these companies, which could help us to assess their long-term potential.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P500 Index by more than 60 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. Plus, we also don’t like paying huge fees.

Encana Corporation (USA) (NYSE:ECA)’s shares are up 5.67% as oil prices rise for the third straight trading day, although they still have lost 41.59% from the start of the year. The rise in oil prices was fueled by both announcements of a smaller supply next year, and after Russia said that it is willing to meet with OPEC and non-OPEC oil producing countries to discuss the market. In the recent past, Russia, to maintain its market share, was unwilling to slash its production to buoy oil prices. Therefore, the latest development has positively affected the shares of energy companies in the U.S. as well as abroad.

While the market may be viewing positively Encana Corporation (USA) (NYSE:ECA) at the moment, hedge funds from our database were not that fond of the company during the April – June quarter as they held 4.50% of all the energy firm’s shares at the end of the period. However, they boosted their stakes by 37% on the quarter to $415.52 million, despite a dip of 1.17% of the stock during the quarter. There were also 26 hedge funds long Encana at the end of June, up by five from the end of March. Among these investors, Israel Englander’s Millennium Management held the largest stake in Encana heading into the third quarter with a stake comprised of 14.44 million shares, up 135% from one quarter earlier.

After an abysmal performance in September, when its stock went down by over 33%, shares of Denbury Resources Inc. (NYSE:DNR), another oil and natural gas company, have climbed 10.50% today on the back of the same news.

Hedge funds from our database, like in the case of EnCana, also owned 4.50% of Denbury, ending the second quarter with stakes worth $102.57 million in aggregate. However, this value fell by 30% on the quarter, fueled by a 12.76% drop of the stock, while the number of funds with long positions declined by seven to 17. Ron Gutfleish’s Elm Ridge Capital held 4.88 million Denbury shares as June closed, the largest stake in the firm among investors we follow.

Meanwhile, the market is punishing Incyte Corporation (NASDAQ:INCY) today as its shares are down 10.20%. It is not entirely clear what sparked the decline, although it is most likely an effect of the overall drop of the biotech industry. Earlier today, the stock was upgraded by Nomura, which raised the price target to $146 from $126 per share, with a ‘Buy’ rating. From the looks of it, hedge funds agree with the analyst, as they amassed 12.60% of Incyte Corporation (NASDAQ:INCY) at the end of June. Overall, 35 funds from our database held stakes with an aggregate value of $2.34 billion, as compared with 31 funds owning positions valued at $2.02 billion a quarter earlier, although the increase could be justified by a 14% growth of the stock. Julian and Felix Baker‘ Baker Bros. Advisors owned the largest stake in Incyte among the  funds we track at the end of June, with holdings containing 14.87 million shares.

Disclosure: None