(By Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Short data sourced from Yahoo! Finance, instiutional data sourced from Fidelity.)
Hedge funds are engaging in what Reuters calls a “broader exodus” of funds from commodities, including oil. The billions of dollars in outflows comes as a result of speculators cutting estimates in anticipation of slower economic growth.
“Big speculators retreated from U.S. commodity markets in the week to Tuesday and cut bullish bets by a record $34 billion over two weeks, according to Reuters calculations based on data from the U.S. Commodity Futures Trading Commission.” (via Reuters)
Oil contractors Brent crude and gasoil took hits in long-term holdings. Brent by 36 per cent, according to the IntercontinentalExchange, and gasoil by a similar 35 per cent. This amounts to nearly $5 billion in combined outflows.
“They [funds] got out of [oil] positions because the price fell. If the market starts to go up, then that will be a buy signal for funds. But if it moves below $100 a barrel, there will be more liquidation,” said Christopher Bellew, an oil broker at Jefferies Bache.
Is this extreme pessimism justified?
For ideas we wanted to identify oil-related companies that have been affected by extreme pessimism.
To create this list, we started with a universe of about 180 oil-related stocks being dumped by institutional investors.
From this list we identified a list of stocks that have seen a significant increase in short selling over the last month. In other words, short sellers increased their bets that these companies will see losses.
Institutional investors and short sellers think these companies are in trouble. But the question has to be asked: How long before most of the bad news is priced into these oil stocks?
If you’re a contrarian, this extreme pessimism should raise a flag.
analyse These Ideas (Tools Will Open In A New Window)
1. RPC Inc. (RES): Provides a range of oilfield services and equipment to the oil and gas companies primarily in the United States. Net institutional sales in the current quarter at -2.3M shares, which represents about 4.57% of the company’s float of 50.35M shares. Shares shorted have increased from 5.98M to 6.87M over the last month, an increase which represents about 1.77% of the company’s float of 50.35M shares.
2. Crosstex Energy LP (XTEX): Operates as an independent midstream energy company. Net institutional sales in the current quarter at -900.1K shares, which represents about 3.32% of the company’s float of 27.12M shares. Shares shorted have increased from 135.90K to 556.65K over the last month, an increase which represents about 1.55% of the company’s float of 27.12M shares.
3. Hornbeck Offshore Services, Inc. (HOS): Operates offshore supply vessels (OSVs), multi-purpose support vessels, and a shore-base to provide logistics support and specialty services to the offshore oil and gas exploration and production industry primarily in the United States and Gulf of Mexico. Net institutional sales in the current quarter at -948.5K shares, which represents about 4.69% of the company’s float of 20.23M shares. Shares shorted have increased from 3.89M to 4.90M over the last month, an increase which represents about 4.99% of the company’s float of 20.23M shares.
Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.