Why Do Hedge Funds Love Rowan Companies PLC (RDC)?

The third-quarter stock market correction has turned out to resemble the situation observed during the Asian financial crisis of 1997. The two relatively short-lived corrections occurred at a time with stable interest rates, falling commodity markets, with strong-performing technology and healthcare sectors, and struggling energy sector. Similarly, the two corrections followed long periods without a correction, which had to come sooner or later and it did. Even so, several prominent hedge fund investors publicly asserted their bearish view on the current state of the U.S. equity markets, suggesting that they significantly cut their exposure to equities during the latest quarter. Having said that, it would be worthwhile to take a look at the hedge fund sentiment on Rowan Companies PLC (NYSE:RDC) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Rowan Companies PLC was in 21 hedge funds’ portfolios at the end of September. RDC shareholders have witnessed a decrease in hedge fund interest in recent months. There were 24 hedge funds in our database with RDC positions at the end of the previous quarter. At the end of this article we will also compare RDC to other stocks, including WESCO International, Inc. (NYSE:WCC), Laredo Petroleum Holdings Inc (NYSE:LPI), and BofI Holding, Inc. (NASDAQ:BOFI) to get a better sense of its popularity.

In the financial world there are plenty of indicators investors have at their disposal to grade their holdings. A duo of the less utilized indicators are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outclass the broader indices by a very impressive amount (see the details here).

Now, let’s view the latest action surrounding Rowan Companies PLC (NYSE:RDC).

What does the smart money think about Rowan Companies PLC (NYSE:RDC)?

Heading into Q4, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 13% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Blue Harbour Group, managed by Clifton S. Robbins, holds the most valuable position in Rowan Companies PLC (NYSE:RDC). The fund reportedly holds a $161.4 million position in the stock, comprising 5% of its 13F portfolio. The second most bullish fund manager is Robert Rodriguez and Steven Romick of First Pacific Advisors LLC, with a $71.1 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish consist of Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Because Rowan Companies PLC (NYSE:RDC) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of fund managers that slashed their full holdings in the third quarter. It’s worth mentioning that Jonathan Barrett and Paul Segal’s Luminus Management cut the biggest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $12.8 million in call options. Sander Gerber’s fund, Hudson Bay Capital Management, also dropped its call options., about $5.7 million worth of stock. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Rowan Companies PLC (NYSE:RDC). These stocks are WESCO International, Inc. (NYSE:WCC), Laredo Petroleum Holdings Inc (NYSE:LPI), BofI Holding, Inc. (NASDAQ:BOFI), and Owens & Minor, Inc. (NYSE:OMI). All of these stocks’ market caps are similar to RDC’s market cap.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. WESCO International, Inc. (NYSE:WCC) is the most popular stock in this table. On the other hand BofI Holding, Inc. (NASDAQ:BOFI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Rowan Companies PLC (NYSE:RDC) is more popular among hedge funds, having also attracted the biggest investment, estimated at $482 million. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.