U.S. markets close in 4 hours 5 minutes

How Hedge Funds Traded Earthstone Energy, Inc. (ESTE) During The Crash

Reymerlyn Martin

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Earthstone Energy, Inc. (NYSE:ESTE) based on those filings.

Is Earthstone Energy, Inc. (NYSE:ESTE) worth your attention right now? Hedge funds are taking a pessimistic view. The number of bullish hedge fund bets fell by 2 lately. Our calculations also showed that ESTE isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

To the average investor there are numerous methods shareholders have at their disposal to evaluate stocks. Some of the most useful methods are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can trounce the S&P 500 by a healthy amount (see the details here).

[caption id="attachment_193003" align="aligncenter" width="400"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the recent hedge fund action regarding Earthstone Energy, Inc. (NYSE:ESTE).

How are hedge funds trading Earthstone Energy, Inc. (NYSE:ESTE)?

At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in ESTE a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

More specifically, Solas Capital Management was the largest shareholder of Earthstone Energy, Inc. (NYSE:ESTE), with a stake worth $2.2 million reported as of the end of September. Trailing Solas Capital Management was Royce & Associates, which amassed a stake valued at $0.3 million. Citadel Investment Group was 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 Solas Capital Management allocated the biggest weight to Earthstone Energy, Inc. (NYSE:ESTE), around 2.33% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.0043 percent of its 13F equity portfolio to ESTE.

Because Earthstone Energy, Inc. (NYSE:ESTE) has experienced falling interest from the smart money, logic holds that there exists a select few hedge funds that elected to cut their full holdings last quarter. Interestingly, D. E. Shaw's D E Shaw sold off the largest investment of all the hedgies followed by Insider Monkey, comprising close to $0.6 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund sold off about $0.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Earthstone Energy, Inc. (NYSE:ESTE) but similarly valued. These stocks are Riverview Bancorp, Inc. (NASDAQ:RVSB), Era Group Inc (NYSE:ERA), Provident Financial Holdings, Inc. (NASDAQ:PROV), and OP Bancorp (NASDAQ:OPBK). This group of stocks' market valuations are similar to ESTE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RVSB,11,5742,1 ERA,7,12528,0 PROV,2,7424,0 OPBK,6,7622,1 Average,6.5,8329,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $3 million in ESTE's case. Riverview Bancorp, Inc. (NASDAQ:RVSB) is the most popular stock in this table. On the other hand Provident Financial Holdings, Inc. (NASDAQ:PROV) is the least popular one with only 2 bullish hedge fund positions. Earthstone Energy, Inc. (NYSE:ESTE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stock9 Most Profitable Reptiles, Pets And Farm Animals To Breed in America s among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on ESTE as the stock returned 48.3% during the second quarter and outperformed the market by an even larger margin.

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

Related Content