Is Precision Drilling Corp (NYSE:PDS) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Precision Drilling Corp (NYSE:PDS) has seen a decrease in activity from the world’s largest hedge funds of late. PDS was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with PDS positions at the end of the previous quarter. Our calculations also showed that PDS isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the new hedge fund action encompassing Precision Drilling Corp (NYSE:PDS).
How are hedge funds trading Precision Drilling Corp (NYSE:PDS)?
At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in PDS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Mountain Lake Investment Management held the most valuable stake in Precision Drilling Corp (NYSE:PDS), which was worth $11.3 million at the end of the second quarter. On the second spot was Encompass Capital Advisors which amassed $10.3 million worth of shares. Moreover, Citadel Investment Group, Millennium Management, and Two Sigma Advisors were also bullish on Precision Drilling Corp (NYSE:PDS), allocating a large percentage of their portfolios to this stock.
Due to the fact that Precision Drilling Corp (NYSE:PDS) has witnessed declining sentiment from the smart money, it’s easy to see that there was a specific group of hedgies that elected to cut their positions entirely by the end of the second quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $3.4 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $3.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to Precision Drilling Corp (NYSE:PDS). We will take a look at AGM Group Holdings Inc. (NASDAQ:AGMH), Re/Max Holdings Inc (NYSE:RMAX), Crawford & Company (NYSE:CRD), and Matrix Service Co (NASDAQ:MTRX). This group of stocks’ market valuations are closest to PDS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGMH | 1 | 210 | 1 |
| RMAX | 10 | 60021 | 4 |
| CRD | 11 | 37471 | 2 |
| MTRX | 14 | 32176 | -1 |
| Average | 9 | 32470 | 1.5 |
View table here if you experience formatting issues.
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 $32 million. That figure was $26 million in PDS’s case. Matrix Service Co (NASDAQ:MTRX) is the most popular stock in this table. On the other hand AGM Group Holdings Inc. (NASDAQ:AGMH) is the least popular one with only 1 bullish hedge fund positions. Precision Drilling Corp (NYSE:PDS) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PDS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PDS investors were disappointed as the stock returned -39.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
