There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze REX American Resources Corp (NYSE:REX).
Is REX American Resources Corp (NYSE:REX) a buy right now? Hedge funds are really betting on the stock. The number of bullish hedge fund investments swelled by 2 in recent months. REX was in 8 hedge funds’ portfolios at the end of September. There were 8 hedge funds in our database with REX positions at the end of September. At the end of this article we will also compare REX to other stocks including Pace Holdings Corp (NASDAQ:PACE), Vera Bradley, Inc. (NASDAQ:VRA), and Nanometrics Incorporated (NASDAQ:NANO) to get a better sense of its popularity.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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How are hedge funds trading REX American Resources Corp (NYSE:REX)?
Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 33% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in REX over the last 5 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in REX American Resources Corp (NYSE:REX), worth close to $44.6 million. The second most bullish fund manager is Thomas E. Claugus of GMT Capital, with a $10.5 million position. Other professional money managers that hold long positions consist of Cliff Asness’ AQR Capital Management, and D. E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As aggregate interest increased, key hedge funds have been driving this bullishness. Citadel Investment Group, led by Ken Griffin, created the most outsized position in REX American Resources Corp (NYSE:REX). Citadel Investment Group had $2.6 million invested in the company at the end of the quarter. Neil Chriss’ Hutchin Hill Capital also made a $1.7 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks similar to REX American Resources Corp (NYSE:REX). We will take a look at Pace Holdings Corp (NASDAQ:PACE), Vera Bradley, Inc. (NASDAQ:VRA), Nanometrics Incorporated (NASDAQ:NANO), and PDL BioPharma Inc. (NASDAQ:PDLI). All of these stocks’ market caps resemble REX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PACE | 20 | 235120 | 0 |
| VRA | 16 | 111913 | 0 |
| NANO | 15 | 75248 | -1 |
| PDLI | 20 | 81412 | 6 |
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $68 million in REX’s case. Pace Holdings Corp (NASDAQ:PACE) is the most popular stock in this table. On the other hand Nanometrics Incorporated (NASDAQ:NANO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks REX American Resources Corp (NYSE:REX) is even less popular than NANO. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
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