Should You Avoid EnCana Corporation (USA) (ECA)?

EnCana Corporation (USA) (NYSE:ECA) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late.

If you’d ask most stock holders, hedge funds are viewed as slow, old financial vehicles of the past. While there are over 8000 funds with their doors open at present, we look at the crème de la crème of this group, close to 450 funds. Most estimates calculate that this group oversees most of the hedge fund industry’s total asset base, and by watching their highest performing equity investments, we have discovered a few investment strategies that have historically outstripped the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as integral, optimistic insider trading activity is another way to parse down the financial markets. Just as you’d expect, there are lots of motivations for an upper level exec to drop shares of his or her company, but only one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the useful potential of this strategy if investors know where to look (learn more here).

Now, we’re going to take a peek at the key action encompassing EnCana Corporation (USA) (NYSE:ECA).

How have hedgies been trading EnCana Corporation (USA) (NYSE:ECA)?

At Q1’s end, a total of 17 of the hedge funds we track held long positions in this stock, a change of -6% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes considerably.

According to our comprehensive database, Jim Simons’s Renaissance Technologies had the largest position in EnCana Corporation (USA) (NYSE:ECA), worth close to $68.5 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which held a $66 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds with similar optimism include Martin Whitman’s Third Avenue Management, Daniel Bubis’s Tetrem Capital Management and Steven Cohen’s SAC Capital Advisors.

Because EnCana Corporation (USA) (NYSE:ECA) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes in Q1. At the top of the heap, Steven Cohen’s SAC Capital Advisors dropped the biggest investment of the 450+ funds we monitor, worth close to $26.8 million in call options, and Thomas Steyer of Farallon Capital was right behind this move, as the fund cut about $12.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds in Q1.

What do corporate executives and insiders think about EnCana Corporation (USA) (NYSE:ECA)?

Bullish insider trading is most useful when the primary stock in question has seen transactions within the past half-year. Over the latest six-month time period, EnCana Corporation (USA) (NYSE:ECA) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to EnCana Corporation (USA) (NYSE:ECA). These stocks are Statoil ASA (ADR) (NYSE:STO), ConocoPhillips (NYSE:COP), Occidental Petroleum Corporation (NYSE:OXY), YPF SA (ADR) (NYSE:YPF), and Sasol Limited (ADR) (NYSE:SSL). This group of stocks are the members of the major integrated oil & gas industry and their market caps resemble ECA’s market cap.