Here’s Why Traders Are Closely Watching Honeywell, United Technologies, Petrobras and Two Other Stocks

WTI futures are 3% in the green after Russian president Vladimir Putin made some constructive comments concerning the commodity. Not surprisingly, many energy stocks and the broader indexes are higher in part due to the rally in crude.

In this article, we examine why traders are closely watching the price action of three energy companies as well as two diversified industrials: Honeywell International Inc. (NYSE:HON), United Technologies Corporation (NYSE:UTX), Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), SM Energy Co (NYSE:SM), and Seadrill Ltd (NYSE:SDRL). We will also use data from the last round of 13F filings,

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

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Honeywell International Inc. (NYSE:HON) is in the spotlight after Goldman Sachs downgraded the stock to ‘Buy’ from ‘Conviction Buy’ and lowered its price target to $122 from $131 per share. Analyst Joe Ritchie thinks Honeywell is now a ‘show me’ story (investors aren’t as confident on guidance) now that the company has missed EBIT estimates for three straight quarters. Goldman still likes Honeywell in the long term as the company trades at a cheap valuation and its fundamentals are solid but management needs to execute better. Phill Gross and Robert Atchinson‘s Adage Capital Management upped its stake in Honeywell International Inc. (NYSE:HON) by 30% to over 2.8 million during the second quarter.

United Technologies Corporation (NYSE:UTX) shares are 0.7% in the red in an up market after Jason Gursky, analyst at Citi, downgraded the stock to ‘Neutral’ from ‘Buy’ and trimmed his price target to $109 from $115. Gursky thinks the Street’s 2017 average estimates are too high and that United management could reduce their 2020 targets during the company’s March annual investor day. In addition, manufacturing issues concerning the company’s GTF engine could also hurt performance. A total of 56 funds from our database owned shares of United Technologies Corporation (NYSE:UTX) at the end of the second quarter, up by five funds from the previous quarter.

On the next page, we examine why Petroleo Brasileiro SA Petrobras (ADR), SM Energy Co, and Seadrill Ltd are in the green.

Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), SM Energy Co (NYSE:SM), and Seadrill Ltd (NYSE:SDRL) are higher on the back of surging WTI and Brent prices. As of 12:31 Eastern time, WTI futures are 2.7% in the green while Brent futures are 2.2% higher as sentiment around the commodity improved due to some comments made by Vladimir Putin. The Russian president commented:

“Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same. We think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.”

Given that Russia is the largest producer of crude in the world, Putin’s words matter. Any cut or freeze by Russia will make OPEC’s goal of stabilizing the oil market considerably easier.

In terms of company-specific news, Petrobras is trending after Bloomberg reported that several international oil companies have reached out to Brazil about potentially having more exposure to some off-shore pre-salt assets/projects. Brazil’s government last week removed a regulation that required Petrobras control operations in new pre-salt projects. The removed regulation could help Petrobras sell more assets at better prices.

Of the three companies, the smart money liked Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) the most, as 23 out of the 749 top funds that we track owned shares of the Brazilian company at the end of June. Meanwhile, 20 funds held shares of SM Energy Co (NYSE:SM) and 17 funds were long Seadrill Ltd (NYSE:SDRL).

Disclosure: None