We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about NextCure, Inc. (NASDAQ:NXTC).
Is NextCure, Inc. (NASDAQ:NXTC) ready to rally soon? Hedge funds are becoming hopeful. The number of long hedge fund bets moved up by 9 in recent months. Our calculations also showed that NXTC 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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. Keeping this in mind we’re going to review the fresh hedge fund action regarding NextCure, Inc. (NASDAQ:NXTC).
What have hedge funds been doing with NextCure, Inc. (NASDAQ:NXTC)?
Heading into the first quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 113% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NXTC over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, OrbiMed Advisors held the most valuable stake in NextCure, Inc. (NASDAQ:NXTC), which was worth $152.7 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $63.9 million worth of shares. Hillhouse Capital Management, Cormorant Asset Management, and Citadel Investment Group 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 Great Point Partners allocated the biggest weight to NextCure, Inc. (NASDAQ:NXTC), around 5.56% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, dishing out 2.25 percent of its 13F equity portfolio to NXTC.
As aggregate interest increased, key hedge funds have jumped into NextCure, Inc. (NASDAQ:NXTC) headfirst. Great Point Partners, managed by Jeffrey Jay and David Kroin, assembled the most outsized position in NextCure, Inc. (NASDAQ:NXTC). Great Point Partners had $63.9 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also made a $8 million investment in the stock during the quarter. The other funds with brand new NXTC positions are Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Israel Englander’s Millennium Management, and D. E. Shaw’s D E Shaw.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as NextCure, Inc. (NASDAQ:NXTC) but similarly valued. We will take a look at Office Properties Income Trust (NASDAQ:OPI), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), Goosehead Insurance, Inc. (NASDAQ:GSHD), and Rambus Inc. (NASDAQ:RMBS). This group of stocks’ market values resemble NXTC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OPI | 9 | 15847 | -1 |
| CCO | 42 | 369556 | -2 |
| GSHD | 9 | 53749 | -1 |
| RMBS | 19 | 173795 | -5 |
| Average | 19.75 | 153237 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $410 million in NXTC’s case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Office Properties Income Trust (NASDAQ:OPI) is the least popular one with only 9 bullish hedge fund positions. NextCure, Inc. (NASDAQ:NXTC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 NXTC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NXTC investors were disappointed as the stock returned -33.4% 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 most of these stocks already outperformed the market in 2020.
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.
