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 (Recession is Imminent: We Need A Travel Ban NOW). 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 NextDecade Corporation (NASDAQ:NEXT).
Is NextDecade Corporation (NASDAQ:NEXT) a good stock to buy now? NEXT was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. NEXT investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 7 hedge funds in our database with NEXT holdings at the end of June. Our calculations also showed that NEXT 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
James Dinan of York 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. With all of this in mind let’s check out the key hedge fund action surrounding NextDecade Corporation (NASDAQ:NEXT).
What does smart money think about NextDecade Corporation (NASDAQ:NEXT)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NEXT over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NextDecade Corporation (NASDAQ:NEXT) was held by York Capital Management, which reported holding $172.5 million worth of stock at the end of September. It was followed by Valinor Management LLC with a $58.3 million position. Other investors bullish on the company included Halcyon Asset Management, Highland Capital Management, and Odey Asset Management Group. In terms of the portfolio weights assigned to each position Valinor Management LLC allocated the biggest weight to NextDecade Corporation (NASDAQ:NEXT), around 100% of its 13F portfolio. York Capital Management is also relatively very bullish on the stock, earmarking 9.62 percent of its 13F equity portfolio to NEXT.
Seeing as NextDecade Corporation (NASDAQ:NEXT) has witnessed declining sentiment from the smart money, logic holds that there is a sect of funds that decided to sell off their full holdings last quarter. Intriguingly, Israel Englander’s Millennium Management said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, worth an estimated $0.1 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to NextDecade Corporation (NASDAQ:NEXT). We will take a look at Crescent Capital BDC, Inc. (NASDAQ:CCAP), PDL BioPharma Inc. (NASDAQ:PDLI), Interface, Inc. (NASDAQ:TILE), Dorchester Minerals LP (NASDAQ:DMLP), Chatham Lodging Trust (NYSE:CLDT), Village Super Market, Inc. (NASDAQ:VLGEA), and Corporacion America Airports SA (NYSE:CAAP). This group of stocks’ market values are similar to NEXT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCAP | 6 | 51922 | 2 |
| PDLI | 15 | 107581 | -1 |
| TILE | 17 | 16681 | -2 |
| DMLP | 5 | 14096 | -1 |
| CLDT | 12 | 29274 | -2 |
| VLGEA | 10 | 28608 | 2 |
| CAAP | 4 | 4063 | -3 |
| Average | 9.9 | 36032 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.9 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $261 million in NEXT’s case. Interface, Inc. (NASDAQ:TILE) is the most popular stock in this table. On the other hand Corporacion America Airports SA (NYSE:CAAP) is the least popular one with only 4 bullish hedge fund positions. NextDecade Corporation (NASDAQ:NEXT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NEXT is 23.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately NEXT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NEXT investors were disappointed as the stock returned -14.4% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.
