Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of NextGen Healthcare, Inc. (NASDAQ:NXGN).
Is NextGen Healthcare, Inc. (NASDAQ:NXGN) a buy here? Prominent investors are getting more bullish. The number of long hedge fund bets moved up by 5 in recent months. Our calculations also showed that NXGN 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.
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 58 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding NextGen Healthcare, Inc. (NASDAQ:NXGN).
What have hedge funds been doing with NextGen Healthcare, Inc. (NASDAQ:NXGN)?
At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in NXGN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in NextGen Healthcare, Inc. (NASDAQ:NXGN), which was worth $5.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $4.7 million worth of shares. Arrowstreet Capital, D E Shaw, and Citadel Investment Group 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 Zebra Capital Management allocated the biggest weight to NextGen Healthcare, Inc. (NASDAQ:NXGN), around 0.46% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, dishing out 0.32 percent of its 13F equity portfolio to NXGN.
Consequently, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most valuable position in NextGen Healthcare, Inc. (NASDAQ:NXGN). Millennium Management had $4.7 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1 million investment in the stock during the quarter. The following funds were also among the new NXGN investors: Michael Castor’s Sio Capital, Greg Eisner’s Engineers Gate Manager, and Thomas Bailard’s Bailard Inc.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NextGen Healthcare, Inc. (NASDAQ:NXGN) but similarly valued. We will take a look at Partner Communications Company Ltd (NASDAQ:PTNR), General American Investors Company, Inc. (NYSE:GAM), Myovant Sciences Ltd. (NYSE:MYOV), and Limelight Networks, Inc. (NASDAQ:LLNW). This group of stocks’ market caps are closest to NXGN’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $27 million in NXGN’s case. Limelight Networks, Inc. (NASDAQ:LLNW) is the most popular stock in this table. On the other hand Partner Communications Company Ltd (NASDAQ:PTNR) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks NextGen Healthcare, Inc. (NASDAQ:NXGN) 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 gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. Unfortunately NXGN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NXGN were disappointed as the stock returned 2.4% during the second quarter (through June 17th) 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.
Disclosure: None. This article was originally published at Insider Monkey.