Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze PDC Energy Inc (NASDAQ:PDCE) from the perspective of those elite funds.
Hedge fund interest in PDC Energy Inc (NASDAQ:PDCE) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as First Midwest Bancorp Inc (NASDAQ:FMBI), Acadia Realty Trust (NYSE:AKR), and Granite Real Estate Investment Trust (NYSE:GRP) to gather more data points. Our calculations also showed that PDCE isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the new hedge fund action regarding PDC Energy Inc (NASDAQ:PDCE).
What does smart money think about PDC Energy Inc (NASDAQ:PDCE)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in PDCE a year ago. 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, Mangrove Partners held the most valuable stake in PDC Energy Inc (NASDAQ:PDCE), which was worth $72.9 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $71.7 million worth of shares. Moreover, Lion Point, Deep Basin Capital, and Portolan Capital Management were also bullish on PDC Energy Inc (NASDAQ:PDCE), allocating a large percentage of their portfolios to this stock.
Seeing as PDC Energy Inc (NASDAQ:PDCE) has witnessed a decline in interest from hedge fund managers, logic holds that there exists a select few fund managers that slashed their positions entirely in the second quarter. At the top of the heap, Wayne Cooperman's Cobalt Capital Management cut the largest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $1.4 million in call options. D. E. Shaw's fund, D E Shaw, also sold off its call options, about $1.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as PDC Energy Inc (NASDAQ:PDCE) but similarly valued. These stocks are First Midwest Bancorp Inc (NASDAQ:FMBI), Acadia Realty Trust (NYSE:AKR), Granite Real Estate Investment Trust (NYSE:GRP), and Innospec Inc. (NASDAQ:IOSP). This group of stocks' market valuations match PDCE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMBI,14,97354,1 AKR,13,108818,3 GRP,11,114835,-2 IOSP,13,72763,-1 Average,12.75,98443,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $258 million in PDCE's case. First Midwest Bancorp Inc (NASDAQ:FMBI) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 11 bullish hedge fund positions. PDC Energy Inc (NASDAQ:PDCE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PDCE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PDCE were disappointed as the stock returned -23% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.