Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Matador Resources Co (NYSE:MTDR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Matador Resources Co (NYSE:MTDR) a buy, sell, or hold? Hedge funds are in a bullish mood. The number of long hedge fund bets advanced by 7 lately. Our calculations also showed that MTDR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most investors, hedge funds are seen as slow, outdated investment tools of years past. While there are more than 8000 funds in operation at present, Our experts hone in on the crème de la crème of this club, around 850 funds. These hedge fund managers shepherd the lion’s share of the smart money’s total asset base, and by shadowing their top investments, Insider Monkey has unsheathed a number of investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the fresh hedge fund action regarding Matador Resources Co (NYSE:MTDR).
Hedge fund activity in Matador Resources Co (NYSE:MTDR)
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 44% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in MTDR over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Encompass Capital Advisors was the largest shareholder of Matador Resources Co (NYSE:MTDR), with a stake worth $44.3 million reported as of the end of September. Trailing Encompass Capital Advisors was Citadel Investment Group, which amassed a stake valued at $26.7 million. Holocene Advisors, D E Shaw, and Royce & Associates 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 Encompass Capital Advisors allocated the biggest weight to Matador Resources Co (NYSE:MTDR), around 2.82% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, designating 0.3 percent of its 13F equity portfolio to MTDR.
As one would reasonably expect, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Matador Resources Co (NYSE:MTDR). Arrowstreet Capital had $4.7 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $1.3 million position during the quarter. The other funds with brand new MTDR positions are Matthew Hulsizer’s PEAK6 Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Jinghua Yan’s TwinBeech Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Matador Resources Co (NYSE:MTDR) but similarly valued. We will take a look at Mack Cali Realty Corp (NYSE:CLI), AlarmCom Holdings Inc (NASDAQ:ALRM), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), and Cal-Maine Foods Inc (NASDAQ:CALM). This group of stocks’ market caps resemble MTDR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLI | 15 | 133709 | 2 |
| ALRM | 28 | 260363 | 7 |
| IRWD | 28 | 416880 | 3 |
| CALM | 15 | 172532 | -6 |
| Average | 21.5 | 245871 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $164 million in MTDR’s case. AlarmCom Holdings Inc (NASDAQ:ALRM) is the most popular stock in this table. On the other hand Mack Cali Realty Corp (NYSE:CLI) is the least popular one with only 15 bullish hedge fund positions. Matador Resources Co (NYSE:MTDR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately MTDR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTDR were disappointed as the stock returned -85% during the same time period 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 this year.
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.
