Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to NextDecade Corporation (NASDAQ:NEXT) changed recently.
Is NextDecade Corporation (NASDAQ:NEXT) undervalued? Money managers are taking a pessimistic view. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that NEXT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are many tools stock traders have at their disposal to evaluate their holdings. Some of the most underrated tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite fund managers can outclass the market by a superb margin (see the details here).
James Dinan of York Capital Management
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 let’s take a glance at the new hedge fund action regarding NextDecade Corporation (NASDAQ:NEXT).
How have hedgies been trading NextDecade Corporation (NASDAQ:NEXT)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in NEXT a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in NextDecade Corporation (NASDAQ:NEXT) was held by York Capital Management, which reported holding $333.4 million worth of stock at the end of September. It was followed by Valinor Management with a $112.6 million position. Other investors bullish on the company included Halcyon Asset Management, Highland Capital Management, and Covalent Capital Partners. In terms of the portfolio weights assigned to each position York Capital Management allocated the biggest weight to NextDecade Corporation (NASDAQ:NEXT), around 15.46% of its 13F portfolio. Halcyon Asset Management is also relatively very bullish on the stock, designating 9.44 percent of its 13F equity portfolio to NEXT.
Due to the fact that NextDecade Corporation (NASDAQ:NEXT) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few funds that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Perella Weinberg Partners dumped the biggest investment of all the hedgies watched by Insider Monkey, worth about $4.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $0.1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NextDecade Corporation (NASDAQ:NEXT) but similarly valued. These stocks are Capstead Mortgage Corporation (NYSE:CMO), Bluegreen Vacations Corporation (NYSE:BXG), Quotient Technology Inc (NYSE:QUOT), and Puxin Limited (NYSE:NEW). All of these stocks’ market caps are similar to NEXT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMO | 9 | 32875 | 0 |
| BXG | 7 | 21356 | 1 |
| QUOT | 17 | 232074 | 4 |
| NEW | 5 | 7400 | 2 |
| Average | 9.5 | 73426 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $510 million in NEXT’s case. Quotient Technology Inc (NYSE:QUOT) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 5 bullish hedge fund positions. NextDecade Corporation (NASDAQ:NEXT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NEXT as the stock returned 13.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
