We can judge whether SeaDrill Limited (NYSE:SDRL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is SeaDrill Limited (NYSE:SDRL) going to take off soon? Money managers are in a pessimistic mood. The number of bullish hedge fund positions retreated by 2 lately. Our calculations also showed that SDRL isn't among the 30 most popular stocks among hedge funds. SDRL was in 22 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 24 hedge funds in our database with SDRL holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
Let's take a peek at the new hedge fund action regarding SeaDrill Limited (NYSE:SDRL).
What have hedge funds been doing with SeaDrill Limited (NYSE:SDRL)?
Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2018. By comparison, 7 hedge funds held shares or bullish call options in SDRL a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SeaDrill Limited (NYSE:SDRL) was held by Centerbridge Partners, which reported holding $76.6 million worth of stock at the end of December. It was followed by King Street Capital with a $64.9 million position. Other investors bullish on the company included Aristeia Capital, GLG Partners, and Odey Asset Management Group.
Because SeaDrill Limited (NYSE:SDRL) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds who were dropping their full holdings in the third quarter. Interestingly, Alex Snow's Lansdowne Partners said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at close to $23.3 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dumped about $3.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to SeaDrill Limited (NYSE:SDRL). We will take a look at ePlus Inc. (NASDAQ:PLUS), Baytex Energy Corp (NYSE:BTE), First Bancorp (NASDAQ:FBNC), and Party City Holdco Inc (NYSE:PRTY). All of these stocks' market caps are closest to SDRL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLUS,13,25055,3 BTE,12,52663,-9 FBNC,16,94672,0 PRTY,18,113628,0 Average,14.75,71505,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $321 million in SDRL's case. Party City Holdco Inc (NYSE:PRTY) is the most popular stock in this table. On the other hand Baytex Energy Corp (NYSE:BTE) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks SeaDrill Limited (NYSE:SDRL) 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. Unfortunately SDRL wasn't nearly as popular as these 15 stock and hedge funds that were betting on SDRL were disappointed as the stock returned 0.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.