Were Hedge Funds Right About Embracing Nexstar Media Group, Inc. (NXST)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Nexstar Media Group, Inc. (NASDAQ:NXST).

Nexstar Media Group, Inc. (NASDAQ:NXST) has seen an increase in enthusiasm from smart money of late. Nexstar Media Group, Inc. (NASDAQ:NXST) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. Our calculations also showed that NXST isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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.

Robert Atchinson of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a peek at the new hedge fund action regarding Nexstar Media Group, Inc. (NASDAQ:NXST).

Hedge fund activity in Nexstar Media Group, Inc. (NASDAQ:NXST)

Heading into the third quarter of 2020, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXST over the last 20 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Seth Klarman’s Baupost Group has the biggest position in Nexstar Media Group, Inc. (NASDAQ:NXST), worth close to $174.5 million, amounting to 2.2% of its total 13F portfolio. The second largest stake is held by Claus Moller of P2 Capital Partners, with a $110.6 million position; 9.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism include Ken Griffin’s Citadel Investment Group, Peter S. Park’s Park West Asset Management and Amy Minella’s Cardinal Capital. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to Nexstar Media Group, Inc. (NASDAQ:NXST), around 11.14% of its 13F portfolio. Alden Global Capital is also relatively very bullish on the stock, earmarking 10.23 percent of its 13F equity portfolio to NXST.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most valuable position in Nexstar Media Group, Inc. (NASDAQ:NXST). Adage Capital Management had $23 million invested in the company at the end of the quarter. Eduardo Costa’s Calixto Global Investors also initiated a $10.7 million position during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, Stephen Mildenhall’s Contrarius Investment Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Nexstar Media Group, Inc. (NASDAQ:NXST) but similarly valued. These stocks are InVitae Corporation (NYSE:NVTA), frontdoor, inc. (NASDAQ:FTDR), LendingTree, Inc (NASDAQ:TREE), Hexcel Corporation (NYSE:HXL), SL Green Realty Corp (NYSE:SLG), Cannae Holdings, Inc. (NYSE:CNNE), and Cloudera, Inc. (NYSE:CLDR). All of these stocks’ market caps resemble NXST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $509 million. That figure was $822 million in NXST’s case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 15 bullish hedge fund positions. Nexstar Media Group, Inc. (NASDAQ:NXST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NXST is 79.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately NXST wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NXST were disappointed as the stock returned 8.7% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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