Is NuStar Energy L.P. (NS) a Good Stock to Buy?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Is NuStar Energy L.P. (NYSE:NS) worth your attention right now? Hedge funds are definitely becoming hopeful. The number of bullish hedge fund bets grew by 1 lately. There were 7 hedge funds in our database with NS holdings 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 Colfax Corp (NYSE:CFX), Ternium S.A. (ADR) (NYSE:TX), and Cepheid (NASDAQ:CPHD) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s analyze the new action surrounding NuStar Energy L.P. (NYSE:NS).

What have hedge funds been doing with NuStar Energy L.P. (NYSE:NS)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the second quarter of 2016. On the other hand, there were a total of 7 hedge funds with a bullish position in NS at the beginning of this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in NuStar Energy L.P. (NYSE:NS), worth close to $4.3 million, accounting for less than 0.1% of its total 13F portfolio. The second largest stake is held by Matthew Hulsizer of PEAK6 Capital Management, with a $3.4 million call position; less than 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism include T Boone Pickens’s BP Capital. We should note that BP Capital is 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 aggregate interest increased, some big names were leading the bulls’ herd. Millennium Management, led by Israel Englander, assembled the biggest position in NuStar Energy L.P. (NYSE:NS). Millennium Management had $2.8 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1.2 million position during the quarter. The following funds were also among the new NS investors: Paul Marshall and Ian Wace’s Marshall Wace LLP and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to NuStar Energy L.P. (NYSE:NS). We will take a look at Colfax Corp (NYSE:CFX), Ternium S.A. (ADR) (NYSE:TX), Cepheid (NASDAQ:CPHD), and DST Systems, Inc. (NYSE:DST). All of these stocks’ market caps are closest to NS’s market cap.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $13 million in NS’s case. Cepheid (NASDAQ:CPHD) is the most popular stock in this table. On the other hand Ternium S.A. (ADR) (NYSE:TX) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks NuStar Energy L.P. (NYSE:NS) is even less popular than TX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None