Is EPM A Good Stock To Buy Now?
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 Evolution Petroleum Corporation (NYSE:EPM)? The smart money sentiment can provide an answer to this question.
Is EPM a good stock to buy now? Evolution Petroleum Corporation (NYSE:EPM) was in 10 hedge funds' portfolios at the end of September. The all time high for this statistics is 14. EPM shareholders have witnessed an increase in support from the world's most elite money managers lately. There were 9 hedge funds in our database with EPM positions at the end of the second quarter. Our calculations also showed that EPM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Roger Ibbotson of Zebra Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's take a peek at the latest hedge fund action encompassing Evolution Petroleum Corporation (NYSE:EPM).
Do Hedge Funds Think EPM Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EPM over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Evolution Petroleum Corporation (NYSE:EPM). Renaissance Technologies has a $5.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is D E Shaw, managed by D. E. Shaw, which holds a $0.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Roger Ibbotson's Zebra Capital Management, Noam Gottesman's GLG Partners and David Harding's Winton Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Evolution Petroleum Corporation (NYSE:EPM), around 0.62% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to EPM.
Consequently, key hedge funds have jumped into Evolution Petroleum Corporation (NYSE:EPM) headfirst. Zebra Capital Management, managed by Roger Ibbotson, established the most outsized position in Evolution Petroleum Corporation (NYSE:EPM). Zebra Capital Management had $0.4 million invested in the company at the end of the quarter. Thomas Bailard's Bailard Inc also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin's Citadel Investment Group.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Evolution Petroleum Corporation (NYSE:EPM) but similarly valued. These stocks are Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN), Mammoth Energy Services, Inc. (NASDAQ:TUSK), Travelzoo (NASDAQ:TZOO), Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX), Cedar Realty Trust Inc (NYSE:CDR), Epsilon Energy Ltd. (NASDAQ:EPSN), and FFBW, Inc. (NASDAQ:FFBW). This group of stocks' market valuations are closest to EPM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRIN,1,4420,-1 TUSK,7,42065,-2 TZOO,8,7486,-4 ETTX,5,8357,3 CDR,11,4353,-4 EPSN,2,11939,-2 FFBW,3,3628,1 Average,5.3,11750,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.3 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $8 million in EPM's case. Cedar Realty Trust Inc (NYSE:CDR) is the most popular stock in this table. On the other hand Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN) is the least popular one with only 1 bullish hedge fund positions. Evolution Petroleum Corporation (NYSE:EPM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EPM is 72.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on EPM as the stock returned 34.8% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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