Should You Avoid Genie Energy Ltd (GNE)?

At Insider Monkey we follow around 730 of the best-performing investors and even though many of them lost money in the last several months, the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Genie Energy Ltd (NYSE:GNE) investors should be aware of a decrease in hedge fund sentiment lately. GNE was in 4 hedge funds’ portfolios at the end of the third quarter of 2015. There were 5 hedge funds in our database with GNE holdings at the end of the previous quarter. At the end of this article we will also compare GNE to other stocks including Hallador Energy Co (NASDAQ:HNRG), DSP Group, Inc. (NASDAQ:DSPG), and Park City Group, Inc. (NASDAQ:PCYG) to get a better sense of its popularity.

In the eyes of most traders, hedge funds are viewed as worthless, old financial tools of years past. While there are greater than 8000 funds with their doors open at present, Our researchers hone in on the bigwigs of this group, approximately 700 funds. Most estimates calculate that this group of people control the majority of the smart money’s total capital, and by tracking their matchless picks, Insider Monkey has identified many investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Keeping this in mind, let’s check out the key action surrounding Genie Energy Ltd (NYSE:GNE).

What does the smart money think about Genie Energy Ltd (NYSE:GNE)?

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among the hedge funds we track, Steve Tannenbaum’s Greenwood Investments held the top position in GNE, which was valued at $4.40 million at the end of September. Coming in second is Renaissance Technologies, with a $3.30 million holding, followed by Peter Muller’s PDT Partners, holding $0.2 million worth of shares.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 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 none of the 700+ hedge funds tracked by Insider Monkey identified GNE as a viable investment and initiated a position in the stock.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Genie Energy Ltd (NYSE:GNE) but similarly valued. We will take a look at Hallador Energy Co (NASDAQ:HNRG), DSP Group, Inc. (NASDAQ:DSPG), Park City Group, Inc. (NASDAQ:PCYG), and Synthetic Biologics Inc (NYSEMKT:SYN). This group of stocks’ market caps are similar to GNE’s market cap.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $11 million in GNE’s case. Hallador Energy Co (NASDAQ:HNRG) is the most popular stock in this table, while Park City Group, Inc. (NASDAQ:PCYG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Genie Energy Ltd (NYSE:GNE) is even less popular than PCYG. 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.