Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Ring Energy Inc (NYSEMKT:REI) to find out whether it was one of their high conviction long-term ideas.
Hedge fund interest in Ring Energy Inc (NYSEMKT:REI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as OceanFirst Financial Corp. (NASDAQ:OCFC), Consolidated-Tomoka Land Co. (NYSEAMEX:CTO), and BioSpecifics Technologies Corp. (NASDAQ:BSTC) to gather more data points.
Follow Ring Energy Inc. (OTC:REI)
Follow Ring Energy Inc. (OTC:REI)
In the eyes of most investors, hedge funds are seen as worthless, old financial tools of years past. While there are over 8000 funds in operation today, Our researchers hone in on the leaders of this group, about 700 funds. Most estimates calculate that this group of people administer the lion’s share of the hedge fund industry’s total asset base, and by shadowing their finest picks, Insider Monkey has uncovered a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
With all of this in mind, let’s take a gander at the new action encompassing Ring Energy Inc (NYSEMKT:REI).
How have hedgies been trading Ring Energy Inc (NYSEMKT:REI)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management has the biggest position in Ring Energy Inc (NYSEMKT:REI), worth close to $10.7 million, amounting to 0.4% of its total 13F portfolio. The second largest stake is held by Talara Capital Management, managed by David Zusman, which holds a $10.3 million position; 6.4% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish include Noam Gottesman’s GLG Partners, J. Carlo Cannell’s Cannell Capital and Ken Griffin’s Citadel Investment Group.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Hudson Bay Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s now review hedge fund activity in other stocks similar to Ring Energy Inc (NYSEMKT:REI). These stocks are OceanFirst Financial Corp. (NASDAQ:OCFC), Consolidated-Tomoka Land Co. (NYSEAMEX:CTO), BioSpecifics Technologies Corp. (NASDAQ:BSTC), and Vocera Communications Inc (NYSE:VCRA). This group of stocks’ market valuations match REI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OCFC | 7 | 27348 | 2 |
| CTO | 10 | 99379 | 0 |
| BSTC | 6 | 15049 | -1 |
| VCRA | 14 | 25208 | 0 |
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $42 million, compared to $31 million in REI’s case. Vocera Communications Inc (NYSE:VCRA) is the most popular stock in this table. On the other hand BioSpecifics Technologies Corp. (NASDAQ:BSTC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ring Energy Inc (NYSEMKT:REI) is even less popular than BSTC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
