Hedge Funds Have Never Been More Bullish On Petroleo Brasileiro S.A.

Hedge Funds Have Never Been More Bullish On Petroleo Brasileiro S.A. – Petrobras (PBR)

Nina Todic

Wed, Oct 9, 2019, 6:15 PM

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR).

Is Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR) a buy, sell, or hold? Hedge funds are in a bullish mood. The number of bullish hedge fund positions moved up by 2 lately. Our calculations also showed that PBR isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

In the financial world there are tons of metrics market participants employ to evaluate their holdings. Some of the less known metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top money managers can outpace the S&P 500 by a significant amount (see the details here).

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We're going to take a peek at the key hedge fund action encompassing Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR).

How have hedgies been trading Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR)?

Heading into the third quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in PBR a year ago. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, founded by billionaire Jim Simons, holds the number one position in Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR). Renaissance Technologies has a $626.7 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Fisher Asset Management, led by Ken Fisher, holding a $621.5 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Ken Heebner's Capital Growth Management, David Costen Haley's HBK Investments and Jon Bauer's Contrarian Capital.

Consequently, key hedge funds were breaking ground themselves. Oaktree Capital Management, managed by Howard Marks, established the largest position in Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR). Oaktree Capital Management had $34.3 million invested in the company at the end of the quarter. Jeffrey Talpins's Element Capital Management also initiated a $26.6 million position during the quarter. The other funds with brand new PBR positions are Joseph Samuels's Islet Management, David Kowitz and Sheldon Kasowitz's Indus Capital, and Louis Bacon's Moore Global Investments.

Let's go over hedge fund activity in other stocks similar to Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR). We will take a look at NVIDIA Corporation (NASDAQ:NVDA), QUALCOMM, Incorporated (NASDAQ:QCOM), General Electric Company (NYSE:GE), and Itau Unibanco Holding SA (NYSE:ITUB). All of these stocks' market caps are closest to PBR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVDA,45,1780215,2 QCOM,61,1721699,16 GE,56,4499936,2 ITUB,18,1084984,-3 Average,45,2271709,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $2272 million. That figure was $2195 million in PBR's case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 18 bullish hedge fund positions. Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 PBR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PBR investors were disappointed as the stock returned -6.4% 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 in 2019.