Petroleo Brasileiro Petrobras SA (ADR) (PBR): Are Hedge Funds Right About This Stock?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR).

Is Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) a safe investment now? The best stock pickers are becoming less confident. The number of long hedge fund bets decreased by 7 in recent months. At the end of this article, we will also compare Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) to other stocks, including Becton, Dickinson and Co. (NYSE:BDX), American Electric Power Company, Inc. (NYSE:AEP), and The Chubb Corporation (NYSE:CB) to get a better sense of its popularity.

To the average investor, there are a large number of tools stock market investors have at their disposal to analyze stocks. A pair of the most underrated tools are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can trounce the S&P 500 by a superb margin (see the details here).

Now, we’re going to take a look at the latest action encompassing Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR).

How have hedgies been trading Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)?

At the end of September, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 23% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), worth close to $41.9 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Oaktree Capital Management, managed by Howard Marks, which holds a $30.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism encompass Hari Hariharan’s NWI Management, Renaissance Technologies, and D E Shaw.

Since Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has experienced a falling interest from the aggregate hedge fund industry, logic holds that there is a sect of fund managers who sold off their entire stakes in the third quarter. Intriguingly, Doug Silverman and Alexander Klabin’s Senator Investment Group said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, valued at about $181 million in stock. David Halpert’s fund, Prince Street Capital Management, also dumped its stock, about $151.5 million worth of shares. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) but similarly valued. We will take a look at Becton, Dickinson and Co. (NYSE:BDX), American Electric Power Company, Inc. (NYSE:AEP), The Chubb Corporation (NYSE:CB), and Monster Beverage Corp (NASDAQ:MNST). All of these stocks’ market caps match Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)’s market cap.

As you can see, these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1.04 billion. That figure was $199 million in Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)’s case. The Chubb Corporation (NYSE:CB) is the most popular stock in this table. On the other hand, Monster Beverage Corp (NASDAQ:MNST) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is even less popular than Monster Beverage Corp (NASDAQ:MNST). 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.