Should You Avoid Nexgen Energy Ltd. (NXE)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Nexgen Energy Ltd. (NYSE:NXE) based on that data.

Nexgen Energy Ltd. (NYSE:NXE) was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. NXE investors should be aware of a decrease in hedge fund interest lately. There were 6 hedge funds in our database with NXE positions at the end of the previous quarter. Our calculations also showed that NXE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the latest hedge fund action regarding Nexgen Energy Ltd. (NYSE:NXE).

What does smart money think about Nexgen Energy Ltd. (NYSE:NXE)?

Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in NXE over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Falcon Edge Capital held the most valuable stake in Nexgen Energy Ltd. (NYSE:NXE), which was worth $4.8 million at the end of the third quarter. On the second spot was Empyrean Capital Partners which amassed $3.1 million worth of shares. Sprott Asset Management, D E Shaw, and GRT Capital 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 Falcon Edge Capital allocated the biggest weight to Nexgen Energy Ltd. (NYSE:NXE), around 0.52% of its 13F portfolio. Empyrean Capital Partners is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to NXE.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified NXE as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks similar to Nexgen Energy Ltd. (NYSE:NXE). We will take a look at Guaranty Bancshares, Inc. (NASDAQ:GNTY), Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Concert Pharmaceuticals Inc (NASDAQ:CNCE), and Whitestone REIT (NYSE:WSR). This group of stocks’ market caps resemble NXE’s market cap.

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As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $9 million in NXE’s case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Guaranty Bancshares, Inc. (NASDAQ:GNTY) is the least popular one with only 2 bullish hedge fund positions. Nexgen Energy Ltd. (NYSE:NXE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on NXE as the stock returned 92.3% during the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.