Is Anadarko Petroleum Corporation (APC) Going to Burn These Hedge Funds?

Does Anadarko Petroleum Corporation (NYSE:APC) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund sentiment towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on 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 unconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years. Going back to the primary subject of this article, the future faith of Anadarko Petroleum is highly-dependent upon the future of crude oil prices. Oil prices jumped to three-month highs earlier this week, as the freshly-sealed agreement among the world’s largest oil producers to freeze output and fresh data about hedge funds’ mounting bullish bets on oil prices have driven crude prices up. With that in mind, let’s take a look at the hedge fund sentiment towards Anadarko Petroleum in the final quarter of 2015.

Is Anadarko Petroleum Corporation (NYSE:APC) a buy here? Hedge funds are selling. The number of bullish hedge fund positions dropped by 9 in recent months. At the end of this article we will also compare APC to other stocks including Telecom Italia S.p.A. (ADR) (NYSE:TI), Banco Bradesco SA (ADR) (NYSE:BBD), and Sherwin-Williams Company (NYSE:SHW) to get a better sense of its popularity.

Today there are a lot of metrics shareholders can use to size up publicly traded companies. A pair of the most underrated metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best fund managers can outperform the broader indices by a superb amount (see the details here).

Anadarko Petroleum Corporation (NYSE:APC) is one of the world’s largest independent exploration and production companies, whose asset portfolio comprises U.S. onshore resource plays in the Rocky Mountains, the Appalachian basin, and Alaska. The company also has operations in the deepwater Gulf of Mexico, as well as exploration and production activities worldwide (e.g. Algeria, Ghana, and Colombia, to name just a few). The global supply/demand crude oil imbalance put its mark on Anadarko Petroleum’s financial performance throughout 2015, as the company’s 2015 sales revenues declined to $9.49 billion from $16.38 billion in 2014. The E&P company anticipates capital expenditures in the range of $2.6 billion to $2.8 billion during 2016, which denotes a decrease of more than 50% from capital investments made in 2015. Nonetheless, the company anticipates that its capital expenditures will be fully funded by cash flows from operations and asset monetization efforts. Just recently, analysts at Macquarie ranked Anadarko Petroleum as its Top Pick in the U.S. exploration and production segment, citing “defensive posture on the outlook for commodity”, asset monetization efforts, among other things. Macquarie has an ‘Outperform’ rating on the stock and a price target of $60. More importantly, analysts have an average 12-month price target of $55.50 on the stock, which yields an upside of 23%.

Now, let’s take a look at the new action encompassing Anadarko Petroleum Corporation (NYSE:APC), as well as discuss the financial health of the company. 

Let’s now take a brief look at Anadarko Petroleum Corporation (NYSE:APC)’s financial health, which is of crucial importance for investors given the uncertainty over crude oil prices. The company had $939 million in cash on December 31, along with $4.75 billion of borrowing capacity under its revolving credit facilities. Meanwhile, Anadarko’s debt amounted to $15.75 billion at the end of 2015. The company’s management believes that its cash on hand, expected operating cash flows, and proceeds from expected asset monetization efforts will be enough to fund its 2016 operational and capital programs. It should be noted that the company recently cut its quarterly dividend to $0.05 per share from $0.27, which will offer an additional $450 million in cash for improving Anadarko’s liquidity. Let’s not forget to mention that the shares of Anadarko have lost 44% since the beginning of 2016.

Hedge fund activity in Anadarko Petroleum Corporation (NYSE:APC)

At the end of the fourth quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 13% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, HBK Investments, managed by David Costen Haley, holds the number one position in Anadarko Petroleum Corporation (NYSE:APC). HBK Investments has a $427.5 million call position in the stock, comprising 4.1% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $233.9 million position; 0.3% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions consist of Andreas Halvorsen’s Viking Global, Phill Gross and Robert Atchinson’s Adage Capital Management and Jonathon Jacobson’s Highfields Capital Management.

Because Anadarko Petroleum Corporation (NYSE:APC) has faced a declination in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedge funds that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Eric W. Mandelblatt’s Soroban Capital Partners dumped the biggest position of the 700 funds followed by Insider Monkey, valued at an estimated $122.6 million in stock. Keith Meister’s fund, Corvex Capital, also dumped its stock, about $119 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 9 funds by the end of the third quarter.

The final page of this article discusses the hedge fund activity in other companies that have market caps close to Anadarko Petroleum’s market capitalization.

Let’s now review hedge fund activity in other stocks similar to Anadarko Petroleum Corporation (NYSE:APC). We will take a look at Telecom Italia S.p.A. (ADR) (NYSE:TI), Banco Bradesco SA (ADR) (NYSE:BBD), Sherwin-Williams Company (NYSE:SHW), and Deere & Company (NYSE:DE). This group of stocks’ market values are similar to APC’s market value.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $1.31 billion. That figure was $2.57 billion in APC’s case. Sherwin-Williams Company (NYSE:SHW) is the most popular stock in this table. On the other hand Telecom Italia S.p.A. (ADR) (NYSE:TI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Anadarko Petroleum Corporation (NYSE:APC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None