According to a 13G form recently filed with the Securities and Exchange Commission, Andreas Halvorsen‘s Viking Global has initiated a new position in Whiting Petroleum Corp (NYSE:WLL) consisting of some 10.26 million shares valued at $301.34 million, based on the stock price at yesterday’s close. The holding amasses about 5.0% of the $6.10 billion oil and gas company’s outstanding shares. While Whiting Petroleum’s stock price has only declined by just under 8% so far this year, it has depreciated by over 64% over the last 12 months. In comparison, the oil & gas exploration & production industry has gained 2.45% year-to-date, but is still down by 23.37% over the last year.
Professional money managers have been showing significant enthusiasm for Whiting Petroleum Corp (NYSE:WLL) of late. This is most likely because the company has become an attractive takeover target for the behemoths of the industry, owing to its low valuation in terms of proven reserves. Whiting Petroleum’s Enterprise Value-to-Proved Reserves ratio hovers around the $14.78 billion mark, which is one of the least among its peers. Among the hedge funds that we track, 61 had an aggregate investment of $1.97 billion in the company at the end of March, compared to just 41 firms with $1.20 billion held at the end of the previous quarter. As Whiting Petroleum’s shares decreased by over 6% during that period, the increase in aggregate holdings of more than 50% is quite substantial.
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First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 135% since the launch of our small-cap strategy compared to less than 55% for the S&P 500 (see the details).
As far as insider trading is concerned, Whiting Petroleum Corp (NYSE:WLL) saw insider sales from one of its Directors, Lynn Peterson to the tune of about 75,000 shares so far this year, while no insider purchases have been detected.
Let’s take a closer look at how hedgies are expressing their interest in Whiting Petroleum Corp (NYSE:WLL).
What have hedge funds been doing with Whiting Petroleum Corp (NYSE:WLL)?
At the end of the first quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long in this stock, a gain of 20 from the previous quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly.
Of the funds tracked by Insider Monkey, John Paulson‘s Paulson & Co had the most valuable position in Whiting Petroleum Corp (NYSE:WLL), worth close to $384.7 million, corresponding to 2% of its total 13F portfolio. The second-most bullish hedge fund is Citadel Investment Group, managed by Ken Griffin, which held a $362.8 million position; the fund had 0.4% of its 13F portfolio invested in the stock. Some other hedge funds that hold long positions comprise Doug Silverman and Alexander Klabin’s Senator Investment Group, Israel Englander’s Millennium Management, and Steve Cohen’s Point72 Asset Management.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Senator Investment Group’s aforementioned position was the largest new one made in Whiting Petroleum Corp (NYSE:WLL) during the first quarter. Senator Investment Group had $208.6 million invested in the company at the end of the March quarter. Rob Citrone’s Discovery Capital Management also made a $110.5 million investment in the stock during this period. The following funds were also among the new Whiting Petroleum investors: Thomas E. Claugus’ GMT Capital, Jacob Doft’s Highline Capital Management, and Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management.
Given the extreme bullishness of the smart money and the fact that shares are still trading slightly below many of their entry point’s, we believe Whiting makes a compelling investment at this time.
Disclosure: None
