Is NextPoint Residential Trust Inc (NXRT) A Good Stock To Buy?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

NextPoint Residential Trust Inc (NYSE:NXRT) investors should be aware of an increase in enthusiasm from smart money recently. There were 10 hedge funds in our database with NXRT positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as ConforMIS Inc (NASDAQ:CFMS), Medley Capital Corp (NYSE:MCC), and Petmed Express Inc (NASDAQ:PETS) to gather more data points.

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.

Keeping this in mind, we’re going to check out the latest action regarding NextPoint Residential Trust Inc (NYSE:NXRT).

Hedge fund activity in NextPoint Residential Trust Inc (NYSE:NXRT)

Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NXRT over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Highland Capital Management, led by James Dondero, holds the largest position in NextPoint Residential Trust Inc (NYSE:NXRT). Highland Capital Management has a $32.9 million position in the stock, comprising 1% of its 13F portfolio. Coming in second is Millennium Management, one of the largest hedge funds in the world,, with a $12.5 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Jim Simons’ Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’ AQR Capital Management. 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 industrywide interest jumped, some big names were breaking ground themselves. Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in NextPoint Residential Trust Inc (NYSE:NXRT). Arrowstreet Capital had $0.8 million invested in the company at the end of the quarter. Mike Vranos’ Ellington also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.

Let’s check out hedge fund activity in other stocks similar to NextPoint Residential Trust Inc (NYSE:NXRT). These stocks are ConforMIS Inc (NASDAQ:CFMS), Medley Capital Corp (NYSE:MCC), Petmed Express Inc (NASDAQ:PETS), and Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). This group of stocks’ market values are closest to NXRT’s market value.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $59 million in NXRT’s case. Petmed Express Inc (NASDAQ:PETS) is the most popular stock in this table. On the other hand ConforMIS Inc (NASDAQ:CFMS) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks NextPoint Residential Trust Inc (NYSE:NXRT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None