Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about PDC Energy Inc (NASDAQ:PDCE).
Is PDCE a good stock to buy? PDC Energy Inc (NASDAQ:PDCE) has experienced a decrease in support from the world's most elite money managers of late. PDC Energy Inc (NASDAQ:PDCE) was in 23 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 32. Our calculations also showed that PDCE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 S&P 500 ETFs by 79 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.
Richard Driehaus of Driehaus Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to check out the recent hedge fund action regarding PDC Energy Inc (NASDAQ:PDCE).
Do Hedge Funds Think PDCE Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in PDCE 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 PDC Energy Inc (NASDAQ:PDCE) was held by Fisher Asset Management, which reported holding $68.3 million worth of stock at the end of June. It was followed by SailingStone Capital Partners with a $49 million position. Other investors bullish on the company included Millennium Management, SIR Capital Management, and Driehaus Capital. In terms of the portfolio weights assigned to each position SailingStone Capital Partners allocated the biggest weight to PDC Energy Inc (NASDAQ:PDCE), around 9.58% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 3.54 percent of its 13F equity portfolio to PDCE.
Seeing as PDC Energy Inc (NASDAQ:PDCE) has faced falling interest from hedge fund managers, it's easy to see that there exists a select few money managers that slashed their full holdings by the end of the second quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP dropped the largest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $17.1 million in stock. Mark Coe's fund, Intrinsic Edge Capital, also dropped its stock, about $3.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PDC Energy Inc (NASDAQ:PDCE) but similarly valued. These stocks are Carter's, Inc. (NYSE:CRI), Stem, Inc. (NYSE:STEM), John Bean Technologies Corporation (NYSE:JBT), Galapagos NV (NASDAQ:GLPG), Itron, Inc. (NASDAQ:ITRI), fuboTV Inc. (NYSE:FUBO), and Xerox Holdings Corporation (NYSE:XRX). All of these stocks' market caps match PDCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRI,21,266338,-6 STEM,29,508984,29 JBT,19,162106,-2 GLPG,23,244672,3 ITRI,16,290609,-13 FUBO,18,203267,0 XRX,25,1116930,-5 Average,21.6,398987,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $248 million in PDCE's case. Stem, Inc. (NYSE:STEM) is the most popular stock in this table. On the other hand Itron, Inc. (NASDAQ:ITRI) is the least popular one with only 16 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. Our overall hedge fund sentiment score for PDCE is 52.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on PDCE as the stock returned 15.2% since the end of Q2 (through 10/22) 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.