Although Plug Power Inc (NASDAQ:PLUG) and Weatherford International Plc (NYSE:WFT) are both classified as energy sector stocks, the sub-categorys under the energy sector in which they operate are in stark contrast to each other. While the former is a provider of alternative energy technology, the latter is a traditional oil and natural gas services company. Coincidentally, the stock performance of these two companies is epitomizing those differences between them today, as they are making nearly identical moves, but in the opposite direction. In this article we will focus on the reasons behind these stocks making such significant moves, good and bad.
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Let’s start with Plug Power Inc (NASDAQ:PLUG). On September 18, the company announced that its CEO, Andrew J. Marsh, would be present at the opening ceremony of Home Depot Inc (NYSE:HD)’s newest distribution center in Ohio, which will use 172 GenDrive fuel cells that are manufactured by Plug Power. Following this announcement a few investors and analysts started speculating that if Plug Power Inc (NASDAQ:PLUG) manages to convince Home Depot Inc (NYSE:HD) to adopt fuel cell technology at the 100 distribution centers it operates, it would result in $1 billion in additional revenue for Plug Power in the next few years. This speculation led to Plug Power’s stock leaping up upon the opening of today’s session and it is still trading up by more than 14% in afternoon trading.
However, even with such large gains, the stock of Plug Power still is still trading down by almost 30% year-to-date, owing to the large decline it suffered during August. For its most recent financial quarter, the company reported a loss per share of $0.06 on revenue of $24 million, compared to the loss per share of $0.07 on revenue of $25.90 million that the Street was expecting. Although most analysts that cover the stock are bullish on it, analysts at Roth Capital have a ‘Hold’ rating on it with a price target of $2.60, which they reiterated on August 9. Out of the over 700 funds that we cover in our database, only six reported having a stake in the company at the end of the second quarter, with billionaire David E. Shaw‘s firm D.E. Shaw, which held 273,770 shares of the company, being among them.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last three years and outperformed the S&P 500 Index by over 60 percentage points (see the details here).
Moving on, shares of Weatherford International Plc (NYSE:WFT) are trading down by 15% after the company announced that it would be launching a concurrent underwritten public offering of its ordinary shares and issuance of subordinated notes of its wholly owned subsidiary Weatherford International Ltd. Through these offerings, Weatherford International Plc (NYSE:WFT) expects to raise $1 billion. At a time when other oil and natural gas companies are trying every trick in the book to reduce their debt and making all the effort in the world to lower their operating expenses, this announcement by Weatherford International hasn’t gone down too well with analysts. Investors of the company are also not happy with this decision, as not only does the issuance of fresh equity dilute their existing ownership in the company, they feel that the company’s plans to add more debt to its books when oil prices have crashed could result in its financial health deteriorating significantly.
Factoring in the announcement made by the company today, analysts at Morgan Stanley reiterated their ‘Overweight’ rating on the stock, but cut their price target on it to $20 from $22, which represents an upside potential of over 130% from the stock’s current price. The decline that the stock has suffered today has resulted in its year-to-date loss widening to almost 25%. Ken Griffin‘s Citadel Investment Group and Anand Parekh‘s Alyeska Investment Group both increased their stakes in the company significantly during the second quarter, by 89% to 7.75 million shares, and by 66% to 4.61 million shares, respectively.
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