We follow hedge fund managers because they're the smartest investors around. They leave less to chance than do most investors. They go to great lengths to get an “edge” over ordinary investors. Hedge fund managers also have the resources to do extensive research on public companies and they have access to experts who can guide them. We believe we are more likely to beat the market by imitating insiders and hedge funds than trading against them.
We like the oil and natural gas industry and believe that these stocks provide protection against inflation. We also think that the high growth rates in emerging markets provide a support under these industries. Investors should consider getting exposed to these sectors both as a growth play and an inflation play. In this article we excluded mega-cap oil stocks like XOM and focused on relatively smaller stocks. Based on the transactions of nearly 350 hedge funds compiled by us, we present the list of top 10 oil and gas stocks that hedge funds are buying like crazy:
- Marathon Oil (NYSE:MRO): More hedge funds (of the more than 350 that we track) own Marathon than any other oil and gas stock. Sixty-nine hedge funds had it in their portfolios in Q2. The stock returned 22% year to date. Eric Mindich's Eton Park Capital had the biggest interest in MRO in Q2, with nearly 5.5 million shares. That figure is after the 62% increase in their position last quarter.
- Williams (NYSE:WMB): Fifty-one hedge funds had Williams in their portfolios as of the end of June. The stock returned 11% so far this year. Jeffrey Tannenbaum's Fir Tree Capital increased their position by 31% last quarter. The firm had 7.3 million shares of WMB at the end of Q2.
- Schlumberger (NYSE:SLB): SLB is one of the four losers in this list. It's lost nearly 6% so far this year, and the 49 hedge funds that had it in their portfolios in the second quarter probably aren't happy about it. Ken Fisher's Fisher Asset Management has the most shares of this among the more than 350 hedge funds we track. The firm had nearly twice the amount as the next guy, with more than 8 million shares at the end of June.
- Halliburton (NYSE:HAL): Halliburton is on the plus side, returning more than 9% year to date. Forty-two hedge funds had in their portfolios in Q2. Ken Griffin's Citadel reduced their position by 17% last quarter. They had slightly more than 2 million shares of HAL at the end of the second quarter.
- Ensco (NYSE:ESV): Ensco was in 41 hedge funds in the second quarter. The stock has lost more than 8% year to date. David Einhorn's Greenlight Capital reduced their position in ESV by 4% last quarter. Greenlight had a bit more than 4.2 million shares, Q2 files show.
- El Paso (EP): Thirty-eight hedge funds had El Paso in their portfolios in the second quarter. El Paso has performed very well recently, returning 40% year to date. Dan Loeb's Third Point increased their position by 18% last quarter, giving them 13 million shares total. Third Point and Barry Rosenstein's Jana Partners have the most of EP, with Jana at about 24 million shares.
- CVR Energy (NYSE:CVI): CVI was in the portfolios of 34 hedge funds in Q2. The stock's return so far this year is stunning- 88%. David Tepper's Appaloosa Management had more of CVR than any other hedge fund we track at the end of Q2. The firm had increased their position by 371% last quarter, giving them 7.3 million shares.
- Valero Energy (NYSE:VLO): The company has lost just slightly less than the S&P year to date, at 1%. S&P has lost 3% so far this year. Valero was in thirty-four hedge funds' portfolios in the second quarter. Israel Englander's Millennium Management increased their position in VLO by 150% last quarter, which gave them about 1.5 million shares.
- Baker Hughes (NYSE:BHI): The stock beat the S&P's 3% loss year to date, returning 8%. Thirty-three hedge funds had BHI in their portfolios in Q2. Ken Heebner's Capital Growth Management decreased their position by 18% in Q2, a move that resulted in them having about 1.5 million shares (check out Ken Heebner’s favorite stocks).
- Hess (NYSE:HES): Hess was the biggest loser here, losing much more than the S&P did year to date. HES has so far lost 22% this year. Thirty-three hedge funds had a position in HES in the second quarter. Clint Carlson's Carlson Capital initiated a position in HES in Q2, with 700K shares.
These stocks have just skyrocketed this year, especially when compared to the S&P. These 10 stocks averaged a return of 14% year to date, compared to the S&P's loss of 3%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.