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Hedge Funds Are Crazy About 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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 second quarter and determine whether the smart money was really smart about this stock.

Matador Resources Co (NYSE:MTDR) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 23. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MTDR has experienced an increase in enthusiasm from smart money recently. There were 17 hedge funds in our database with MTDR positions at the end of the first quarter. Our calculations also showed that MTDR 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 let’s take a gander at the fresh hedge fund action regarding Matador Resources Co (NYSE:MTDR).

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

At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MTDR over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is MTDR A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the most valuable position in Matador Resources Co (NYSE:MTDR), worth close to $24 million, corresponding to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $21.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism include D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to Matador Resources Co (NYSE:MTDR), around 1.75% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, setting aside 0.62 percent of its 13F equity portfolio to MTDR.

As aggregate interest increased, key money managers were breaking ground themselves. Fisher Asset Management, managed by Ken Fisher, initiated the most valuable position in Matador Resources Co (NYSE:MTDR). Fisher Asset Management had $0.8 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Jonathan Soros’s JS Capital, William Harnisch’s Peconic Partners LLC, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks similar to Matador Resources Co (NYSE:MTDR). We will take a look at PetIQ, Inc. (NASDAQ:PETQ), Gossamer Bio, Inc. (NASDAQ:GOSS), New York Mortgage Trust, Inc. (NASDAQ:NYMT), Deluxe Corporation (NYSE:DLX), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), and M/I Homes Inc (NYSE:MHO). This group of stocks’ market caps resemble MTDR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PETQ 16 143510 3
GOSS 19 168888 9
NYMT 15 50577 2
DLX 18 68557 3
JBSS 14 62983 0
RYTM 11 257126 2
MHO 15 76485 -1
Average 15.4 118304 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $102 million in MTDR’s case. Gossamer Bio, Inc. (NASDAQ:GOSS) is the most popular stock in this table. On the other hand Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Matador Resources Co (NYSE:MTDR) is more popular among hedge funds. Our overall hedge fund sentiment score for MTDR is 90. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately MTDR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MTDR were disappointed as the stock returned -2.8% during the third quarter 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 most of these stocks already outperformed the market in 2020.

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