Did Hedge Funds Make The Right Call On Matador Resources Co (MTDR) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Matador Resources Co (NYSE:MTDR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Matador Resources Co (NYSE:MTDR) investors should pay attention to a decrease in enthusiasm from smart money recently. MTDR was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 23 hedge funds in our database with MTDR holdings at the end of the previous quarter. Our calculations also showed that MTDR 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.

If you’d ask most traders, hedge funds are viewed as worthless, outdated investment tools of yesteryear. While there are over 8000 funds in operation at present, We choose to focus on the elite of this group, approximately 850 funds. These hedge fund managers handle the lion’s share of all hedge funds’ total capital, and by tracking their unrivaled stock picks, Insider Monkey has revealed a few investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a peek at the key hedge fund action encompassing Matador Resources Co (NYSE:MTDR).

How have hedgies been trading Matador Resources Co (NYSE:MTDR)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in MTDR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is MTDR A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in Matador Resources Co (NYSE:MTDR), which was worth $14.3 million at the end of the third quarter. On the second spot was Encompass Capital Advisors which amassed $10.6 million worth of shares. Millennium Management, D E Shaw, and Two Sigma Advisors 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 1.14% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, dishing out 0.67 percent of its 13F equity portfolio to MTDR.

Due to the fact that Matador Resources Co (NYSE:MTDR) has experienced a decline in interest from hedge fund managers, we can see that there exists a select few money managers that elected to cut their full holdings in the first quarter. Intriguingly, Brandon Haley’s Holocene Advisors said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, valued at about $17.9 million in stock. Ken Fisher’s fund, Fisher Asset Management, also cut its stock, about $10.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds in the first quarter.

Let’s now review 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 CNB Financial Corporation (NASDAQ:CCNE), Carriage Services, Inc. (NYSE:CSV), Harpoon Therapeutics, Inc. (NASDAQ:HARP), and Telaria, Inc. (NYSE:TLRA). This group of stocks’ market caps are similar to MTDR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCNE 6 20463 0
CSV 11 38774 -1
HARP 11 52011 3
TLRA 15 50300 0
Average 10.75 40387 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $44 million in MTDR’s case. Telaria, Inc. (NYSE:TLRA) is the most popular stock in this table. On the other hand CNB Financial Corporation (NASDAQ:CCNE) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Matador Resources Co (NYSE:MTDR) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on MTDR as the stock returned 268.1% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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