Did Hedge Funds Make The Right Call On NexTier Oilfield Solutions Inc. (NEX) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NexTier Oilfield Solutions Inc. (NYSE:NEX) and determine whether hedge funds had an edge regarding this stock.

Is NexTier Oilfield Solutions Inc. (NYSE:NEX) a buy, sell, or hold? Money managers were taking a pessimistic view. The number of long hedge fund positions shrunk by 8 lately. Our calculations also showed that NEX 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). NEX was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with NEX positions at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s review the latest hedge fund action regarding NexTier Oilfield Solutions Inc. (NYSE:NEX).

What does smart money think about NexTier Oilfield Solutions Inc. (NYSE:NEX)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in NEX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NEX A Good Stock To Buy?

More specifically, Cerberus Capital Management was the largest shareholder of NexTier Oilfield Solutions Inc. (NYSE:NEX), with a stake worth $45.5 million reported as of the end of September. Trailing Cerberus Capital Management was Pzena Investment Management, which amassed a stake valued at $11.4 million. Renaissance Technologies, Fisher Asset Management, and Prescott Group Capital Management 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 Covalent Capital Partners allocated the biggest weight to NexTier Oilfield Solutions Inc. (NYSE:NEX), around 9.04% of its 13F portfolio. Cerberus Capital Management is also relatively very bullish on the stock, dishing out 8.99 percent of its 13F equity portfolio to NEX.

Since NexTier Oilfield Solutions Inc. (NYSE:NEX) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of money managers who sold off their full holdings by the end of the first quarter. Interestingly, Anand Parekh’s Alyeska Investment Group said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $6.9 million in stock. Matt Smith’s fund, Deep Basin Capital, also dropped its stock, about $6.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to NexTier Oilfield Solutions Inc. (NYSE:NEX). These stocks are GenMark Diagnostics, Inc (NASDAQ:GNMK), Navigator Holdings Ltd (NYSE:NVGS), Silver Spike Acquisition Corp. (NASDAQ:SSPKU), and ADMA Biologics Inc (NASDAQ:ADMA). This group of stocks’ market caps are closest to NEX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GNMK 14 43800 -3
NVGS 13 18880 -3
SSPKU 12 35047 2
ADMA 19 86590 7
Average 14.5 46079 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $85 million in NEX’s case. ADMA Biologics Inc (NASDAQ:ADMA) is the most popular stock in this table. On the other hand Silver Spike Acquisition Corp. (NASDAQ:SSPKU) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks NexTier Oilfield Solutions Inc. (NYSE:NEX) 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 NEX as the stock returned 130.8% 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.