Dmitri Balyasny’s Balyasny Asset Management recently disclosed, in two filings with the Securities and Exchange Commission, the addition of two new passive holdings to its equity portfolio. The first position is represented by TETRA Technologies, Inc. (NYSE:TTI), in which Balyasny owns 4.29 million shares, equal to 5.39% of the company’s common stock. The second new position is in Basic Energy Services, Inc (NYSE:BAS), with Balyasny owning 2.26 million shares representing a 5.39% stake.
Balyasny Asset Management is a fund that we have been following for the last couple of years along with over 700 other investors. We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed. We used a 60-day delay in our back tests to be on the safe side. Our research have shown that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012. These stocks returned 132% over the last 2.5 years, outperforming the S&P 500 ETF by nearly 80 percentage points (see more details here).
Mr. Balyasny has a focus on generating true alpha, and holds a balanced and diversified portfolio, valued at $10.89 billion as of the end of 2014. Two newly disclosed moves are just the latest in a series of big plays in the energy sector by Balyasny, who back in February revealed a large new stake in Peabody Energy Corporation (NYSE:BTU), a company in which he had also previously had a large investment. Prior to that, in the middle of December, he revealed a new position in Oasis Petroleum Inc. (NYSE:OAS).
Unsurprisingly, what all of these energy stocks have in common is that they’ve declined tremendously since the middle of 2014. Oasis is down by nearly 75%, while Peabody has crumbled by more than 68%. In the case of Balyasny’s two latest bets, TETRA Technologies, Inc. (NYSE:TTI) lost around 50%, while Basic Energy Services, Inc (NYSE:BAS) fell by more than 75% since June 2014. Balyasny also cut his expposure to some energy stocks, as he did in the case of Canadian Natural Resource Ltd (USA) (NYSE:CNQ) last quarter, which lost over 33% since the middle of 2014. Mr. Balyasny closed his position in the company, which had ranked as his eighth largest a quarter earlier. This shows he is not just betting on the rebounding of the energy sector, but also focuses on some particular companies.
While TETRA Technologies, Inc. (NYSE:TTI)’s stock is down by 12.57% year-to-date, it has recovered by nearly 20% since late February, after the oil and gas services company beat earnings estimates for the fourth quarter of 2014. On February 27, TETRA announced adjusted earnings per share of $0.09, versus a consensus estimate of $0.08, though revenue came in slightly lower at $319.9 million compared to the estimate of $320.8 million.
Nonetheless, TETRA faces a number of operational challenges in 2015, including weakening demand in its Offshore Services Segment, slim profit margins, and a weak operating cash flow. TETRA Technologies, Inc. (NYSE:TTI) doesn’t enjoy a lot of support from other hedge funds we track, aside from Balyasny. The only other investor with a significant long position in the company is Mariko Gordon’s Daruma Asset Management, which has 6.51 million shares, according to its latest 13F filing.
Basic Energy Services, Inc (NYSE:BAS) has not fared as poorly since the beginning of the year as TETRA, shedding less than 2%. The Texas-based company provides services to companies operating in the oil and natural gas production industries, primarily services for maintaining oil and gas wells, as well as a saltwater disposal network. Like TETRA, it also faces several operational challenges in the short term, including a high debt-to-equity ratio of 2.58, as well as the need to counter falling income and profit margins, which in the case of the former, slid to -$18.81 million in the fourth quarter of 2014 from -$7.41 million in the fourth quarter of 2013.
Basic Energy Services, Inc (NYSE:BAS) also enjoys more attention from investors than TETRA. Billionaires Israel Englander and Jim Simons own 822,100 shares and 761,200 shares, respectively, as of the end of 2014, though each position accounted for a miniscule amount of their equity portfolios (around 0.01% each). Balyasny’s new position now makes him the largest shareholder among the funds we track.
Disclosure: None
