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Did Hedge Funds Drop The Ball On ProPetro Holding Corp. (PUMP) ?

Nina Todic

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in ProPetro Holding Corp. (NYSE:PUMP)? The smart money sentiment can provide an answer to this question.

ProPetro Holding Corp. (NYSE:PUMP) has experienced a decrease in enthusiasm from smart money of late. PUMP was in 20 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 21 hedge funds in our database with PUMP positions at the end of the previous quarter. Our calculations also showed that pump isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Let's take a gander at the key hedge fund action surrounding ProPetro Holding Corp. (NYSE:PUMP).

What have hedge funds been doing with ProPetro Holding Corp. (NYSE:PUMP)?

At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PUMP over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PUMP Positions

Among these funds, Millennium Management held the most valuable stake in ProPetro Holding Corp. (NYSE:PUMP), which was worth $43.5 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $23.7 million worth of shares. Moreover, Adage Capital Management, Encompass Capital Advisors, and Point72 Asset Management were also bullish on ProPetro Holding Corp. (NYSE:PUMP), allocating a large percentage of their portfolios to this stock.

Due to the fact that ProPetro Holding Corp. (NYSE:PUMP) has experienced falling interest from hedge fund managers, it's easy to see that there were a few hedgies who were dropping their entire stakes last quarter. Intriguingly, Jonathan Barrett and Paul Segal's Luminus Management said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, totaling about $3.9 million in stock, and Larry Foley and Paul Farrell's Bronson Point Partners was right behind this move, as the fund sold off about $1.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as ProPetro Holding Corp. (NYSE:PUMP) but similarly valued. These stocks are Luminex Corporation (NASDAQ:LMNX), Celestica Inc. (NYSE:CLS), Electro Scientific Industries, Inc. (NASDAQ:ESIO), and TriCo Bancshares (NASDAQ:TCBK). All of these stocks' market caps match PUMP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LMNX,19,175259,3 CLS,14,100130,-3 ESIO,17,197164,4 TCBK,10,38939,-1 Average,15,127873,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $160 million in PUMP's case. Luminex Corporation (NASDAQ:LMNX) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks ProPetro Holding Corp. (NYSE:PUMP) is more popular among hedge funds. 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. Hedge funds were also right about betting on PUMP as the stock returned 100.2% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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