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Is ERF A Good Stock To Buy Now?

Asma UL Husna
·6 min read

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of Enerplus Corp (NYSE:ERF) based on that data.

Is ERF a good stock to buy now? The smart money was becoming hopeful. The number of long hedge fund positions rose by 1 lately. Enerplus Corp (NYSE:ERF) was in 17 hedge funds' portfolios at the end of September. The all time high for this statistic is 21. Our calculations also showed that ERF 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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. Now we're going to take a look at the recent hedge fund action regarding Enerplus Corp (NYSE:ERF).

Do Hedge Funds Think ERF Is A Good Stock To Buy Now?

At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in ERF over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Encompass Capital Advisors held the most valuable stake in Enerplus Corp (NYSE:ERF), which was worth $30.6 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $8.8 million worth of shares. Deep Basin Capital, Luminus Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Enerplus Corp (NYSE:ERF), around 2.72% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, setting aside 1.74 percent of its 13F equity portfolio to ERF.

Now, key money managers have jumped into Enerplus Corp (NYSE:ERF) headfirst. Luminus Management, managed by Jonathan Barrett and Paul Segal, assembled the largest position in Enerplus Corp (NYSE:ERF). Luminus Management had $7.5 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Thomas Bailard's Bailard Inc.

Let's also examine hedge fund activity in other stocks similar to Enerplus Corp (NYSE:ERF). These stocks are The Children's Place Inc. (NASDAQ:PLCE), Tekla Life Sciences Investors (NYSE:HQL), WAVE Life Sciences Ltd. (NASDAQ:WVE), Arlo Technologies, Inc. (NYSE:ARLO), ASA Gold and Precious Metals Ltd (NYSE:ASA), U.S. Xpress Enterprises, Inc. (NYSE:USX), and ProPetro Holding Corp. (NYSE:PUMP). This group of stocks' market caps are similar to ERF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLCE,16,84447,-7 HQL,2,1362,0 WVE,24,163279,7 ARLO,16,43387,1 ASA,5,14951,0 USX,12,14049,6 PUMP,17,40802,-1 Average,13.1,51754,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $77 million in ERF's case. WAVE Life Sciences Ltd. (NASDAQ:WVE) is the most popular stock in this table. On the other hand Tekla Life Sciences Investors (NYSE:HQL) is the least popular one with only 2 bullish hedge fund positions. Enerplus Corp (NYSE:ERF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ERF is 64.4. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on ERF as the stock returned 83.1% since the end of Q3 (through 12/14) 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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