Is NEX A Good Stock To Buy Now According To Hedge Funds?

In this article we will analyze whether NexTier Oilfield Solutions Inc. (NYSE:NEX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is NEX a good stock to buy now? NexTier Oilfield Solutions Inc. (NYSE:NEX) was in 22 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 29. NEX investors should be aware of a decrease in hedge fund sentiment recently. There were 24 hedge funds in our database with NEX holdings at the end of June. Our calculations also showed that NEX isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 66 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.

Stephen Feinberg Cerberus Capital

Stephen Feinberg of Cerberus 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s check out the fresh hedge fund action surrounding NexTier Oilfield Solutions Inc. (NYSE:NEX).

Do Hedge Funds Think NEX Is A Good Stock To Buy Now?

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. By comparison, 23 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.

Among these funds, Cerberus Capital Management held the most valuable stake in NexTier Oilfield Solutions Inc. (NYSE:NEX), which was worth $71.9 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $20.6 million worth of shares. Deep Basin Capital, Renaissance Technologies, and Fisher Asset 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 7.14% of its 13F portfolio. Cerberus Capital Management is also relatively very bullish on the stock, setting aside 2.76 percent of its 13F equity portfolio to NEX.

Judging by the fact that NexTier Oilfield Solutions Inc. (NYSE:NEX) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that decided to sell off their entire stakes in the third quarter. Intriguingly, Donald Sussman’s Paloma Partners cut the biggest stake of the 750 funds watched by Insider Monkey, worth close to $0.3 million in stock. D. E. Shaw’s fund, D E Shaw, also cut its stock, about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NexTier Oilfield Solutions Inc. (NYSE:NEX) but similarly valued. We will take a look at Select Energy Services, Inc. (NYSE:WTTR), Kosmos Energy Ltd (NYSE:KOS), Tristate Capital Holdings Inc (NASDAQ:TSC), SeaSpine Holdings Corp (NASDAQ:SPNE), Haverty Furniture Companies, Inc. (NYSE:HVT), Bank of Marin Bancorp (NASDAQ:BMRC), and HCI Group Inc (NYSE:HCI). This group of stocks’ market valuations are similar to NEX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WTTR 10 14886 -3
KOS 11 8123 -1
TSC 17 36134 0
SPNE 16 51405 0
HVT 14 52327 3
BMRC 7 9987 -1
HCI 10 32195 -1
Average 12.1 29294 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.1 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $142 million in NEX’s case. Tristate Capital Holdings Inc (NASDAQ:TSC) is the most popular stock in this table. On the other hand Bank of Marin Bancorp (NASDAQ:BMRC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks NexTier Oilfield Solutions Inc. (NYSE:NEX) is more popular among hedge funds. Our overall hedge fund sentiment score for NEX is 75.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on NEX as the stock returned 100% since the end of September (through 12/14) 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.