It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Nexstar Media Group, Inc. (NASDAQ:NXST).
Nexstar Media Group, Inc. (NASDAQ:NXST) was in 34 hedge funds’ portfolios at the end of the third quarter of 2019. NXST has seen a decrease in hedge fund interest lately. There were 40 hedge funds in our database with NXST positions at the end of the previous quarter. Our calculations also showed that NXST isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Seth Klarman of Baupost Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to analyze the latest hedge fund action regarding Nexstar Media Group, Inc. (NASDAQ:NXST).
What have hedge funds been doing with Nexstar Media Group, Inc. (NASDAQ:NXST)?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NXST over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, P2 Capital Partners was the largest shareholder of Nexstar Media Group, Inc. (NASDAQ:NXST), with a stake worth $211.7 million reported as of the end of September. Trailing P2 Capital Partners was Baupost Group, which amassed a stake valued at $204.6 million. Windacre Partnership, Park West Asset Management, and Hound Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Nexstar Media Group, Inc. (NASDAQ:NXST), around 20.65% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, dishing out 14.3 percent of its 13F equity portfolio to NXST.
Since Nexstar Media Group, Inc. (NASDAQ:NXST) has witnessed a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies who were dropping their positions entirely last quarter. At the top of the heap, Renaissance Technologies cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $56.4 million in stock. Donald Sussman’s fund, Paloma Partners, also said goodbye to its stock, about $8.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 6 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Nexstar Media Group, Inc. (NASDAQ:NXST). We will take a look at Armstrong World Industries, Inc. (NYSE:AWI), Eastgroup Properties Inc (NYSE:EGP), Black Hills Corporation (NYSE:BKH), and Essent Group Ltd (NYSE:ESNT). This group of stocks’ market values are closest to NXST’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AWI | 29 | 505278 | -1 |
| EGP | 10 | 24396 | -2 |
| BKH | 19 | 186727 | 3 |
| ESNT | 23 | 301615 | -7 |
| Average | 20.25 | 254504 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $1330 million in NXST’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Nexstar Media Group, Inc. (NASDAQ:NXST) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on NXST as the stock returned 51.9% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
