Is PBR Stock A Buy or Sell?

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR).

Is PBR stock a buy? Hedge funds were turning less bullish. The number of long hedge fund bets dropped by 7 lately. Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. Our calculations also showed that PBR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 31 hedge funds in our database with PBR holdings at the end of September.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Howard Marks of Oaktree Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a peek at the key hedge fund action encompassing Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR).

Do Hedge Funds Think PBR Is A Good Stock To Buy Now?

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the third quarter of 2020. On the other hand, there were a total of 35 hedge funds with a bullish position in PBR a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). Fisher Asset Management has a $442.2 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $418.7 million position; 0.5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish contain Howard Marks’s Oaktree Capital Management, Richard Oldfield’s Oldfield Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Oldfield Partners allocated the biggest weight to Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), around 3.32% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 3.13 percent of its 13F equity portfolio to PBR.

Due to the fact that Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) has witnessed falling interest from the smart money, logic holds that there exists a select few hedge funds who sold off their positions entirely heading into Q1. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest investment of the 750 funds watched by Insider Monkey, worth about $77.8 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $13.3 million worth. These transactions are important to note, as total hedge fund interest fell by 7 funds heading into Q1.

Let’s also examine hedge fund activity in other stocks similar to Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). These stocks are Gilead Sciences, Inc. (NASDAQ:GILD), Becton, Dickinson and Company (NYSE:BDX), KE Holdings Inc (NYSE:BEKE), Infosys Limited (NYSE:INFY), Activision Blizzard, Inc. (NASDAQ:ATVI), China Petroleum & Chemical Corp (NYSE:SNP), and U.S. Bancorp (NYSE:USB). All of these stocks’ market caps are similar to PBR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.1 hedge funds with bullish positions and the average amount invested in these stocks was $3121 million. That figure was $1336 million in PBR’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PBR is 26.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately PBR wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); PBR investors were disappointed as the stock returned -21.3% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.