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Did Hedge Funds Drop The Ball On Baytex Energy Corp (BTE)?

Abigail Fisher

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Baytex Energy Corp (NYSE:BTE).

Is Baytex Energy Corp (NYSE:BTE) undervalued? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions dropped by 9 recently. Our calculations also showed that BTE isn't among the 30 most popular stocks among hedge funds.

To most investors, hedge funds are viewed as underperforming, old investment vehicles of years past. While there are over 8000 funds in operation at the moment, Our researchers hone in on the moguls of this club, around 750 funds. It is estimated that this group of investors oversee the majority of the hedge fund industry's total asset base, and by tracking their inimitable equity investments, Insider Monkey has come up with several investment strategies that have historically outperformed the market. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by nearly 5 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Blair Levinsky of Waratah Capital Advisors

We're going to take a peek at the fresh hedge fund action encompassing Baytex Energy Corp (NYSE:BTE).

How are hedge funds trading Baytex Energy Corp (NYSE:BTE)?

At Q4's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in BTE a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

BTE_apr2019

More specifically, Luminus Management was the largest shareholder of Baytex Energy Corp (NYSE:BTE), with a stake worth $36.8 million reported as of the end of December. Trailing Luminus Management was Point72 Asset Management, which amassed a stake valued at $4.9 million. Waratah Capital Advisors, PDT Partners, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Baytex Energy Corp (NYSE:BTE) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of funds that decided to sell off their entire stakes last quarter. Intriguingly, Todd J. Kantor's Encompass Capital Advisors dropped the largest stake of the 700 funds tracked by Insider Monkey, comprising an estimated $25.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund cut about $17.9 million worth. These moves are important to note, as total hedge fund interest was cut by 9 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Baytex Energy Corp (NYSE:BTE). We will take a look at First Bancorp (NASDAQ:FBNC), Party City Holdco Inc (NYSE:PRTY), Archrock, Inc. (NYSE:AROC), and Stratasys, Ltd. (NASDAQ:SSYS). All of these stocks' market caps are closest to BTE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FBNC,16,94672,0 PRTY,18,113628,0 AROC,20,41350,5 SSYS,14,97848,0 Average,17,86875,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $53 million in BTE's case. Archrock, Inc. (NYSE:AROC) is the most popular stock in this table. On the other hand Stratasys, Ltd. (NASDAQ:SSYS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Baytex Energy Corp (NYSE:BTE) is even less popular than SSYS. Hedge funds clearly dropped the ball on BTE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on BTE as the stock returned 27.8% and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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