According to B of A/ Merrill Lynch's, "Hedge Fund Monitor Report" dated April 26, 2010:
Overall, Hedge Funds remain cautions on US equities, further selling the S&P 500 and pairing back on the NDX. At the same time, despite some selling last week, they remain very net long metals and energy. They also continue to be very short the Euro and are keeping to their curve steepening trade.
These data points were considered significant Hedge Fund moves across all asset classes. Hedge funds as of last week were cautious of the overall market and were looking for protection on the downside. It's like they saw yesterday's 200+ point decline before it even happened. The focus has been with smaller cap stocks, or higher beta plays, but now they are fleeing to safety and rotating into oil.
The oil data point actually caught my interest, stating that hedge funds were adding to their crowded longs in oil. This is because I had a great conversation last week with a fellow investor from Stanford (A. Ho) who focuses on sectors that he thinks will do well in a 3-6 month time frame. He recommended taking a look at stocks that move with higher oil prices. His higher oil thesis is right in line with the hedge funds. I'll be sure to discuss the other sectors he is fond of in the near future, since he has had a hot hand as of late.
The stocks we discussed are Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) & ConocoPhillips (NYSE:COP) which should benefit with higher oil prices. Their valuation look extremely attractive at these levels as well. CVX is the cheapest on a current multiple valuation basis and XOM has the best PEG of an impressive .75 (We always try to look for a PEG of under 2). Other companies he suggested taking a look at are MRO, CLR, TLM & DIG. I have yet to conduct thorough analysis on these, but it's definitely worth taking a look.
Jim Cramer has been recommending oil drillers as of late because he just recently stated that oil should be going to $100/barrel. More specifically Weatherford Int. (NYSE:WFT). He also recommended Occidental Petroleum as an oil play as well.
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