While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Rattler Midstream LP (NASDAQ:RTLR).
Is RTLR a good stock to buy now? Hedge fund interest in Rattler Midstream LP (NASDAQ:RTLR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that RTLR 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). At the end of this article we will also compare RTLR to other stocks including Liberty Oilfield Services Inc. (NYSE:LBRT), Chase Corporation (NYSE:CCF), and Huron Consulting Group (NASDAQ:HURN) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are numerous methods market participants have at their disposal to evaluate stocks. Two of the less utilized methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can outperform the market by a solid amount (see the details here).
Israel Englander of Millennium 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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Now let’s go over the key hedge fund action encompassing Rattler Midstream LP (NASDAQ:RTLR).
What does smart money think about Rattler Midstream LP (NASDAQ:RTLR)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in RTLR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Zimmer Partners was the largest shareholder of Rattler Midstream LP (NASDAQ:RTLR), with a stake worth $28.5 million reported as of the end of September. Trailing Zimmer Partners was Cardinal Capital, which amassed a stake valued at $18.2 million. Prescott Group Capital Management, Renaissance Technologies, and Millennium 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 Prescott Group Capital Management allocated the biggest weight to Rattler Midstream LP (NASDAQ:RTLR), around 2.81% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, setting aside 0.76 percent of its 13F equity portfolio to RTLR.
Judging by the fact that Rattler Midstream LP (NASDAQ:RTLR) has experienced a decline in interest from the smart money, logic holds that there was a specific group of fund managers that elected to cut their positions entirely heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group dropped the largest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $5.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Rattler Midstream LP (NASDAQ:RTLR) but similarly valued. These stocks are Liberty Oilfield Services Inc. (NYSE:LBRT), Chase Corporation (NYSE:CCF), Huron Consulting Group (NASDAQ:HURN), Fanhua Inc. (NASDAQ:FANH), OrthoPediatrics Corp. (NASDAQ:KIDS), Systemax Inc. (NYSE:SYX), and Fulgent Genetics, Inc. (NASDAQ:FLGT). This group of stocks’ market caps are closest to RTLR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LBRT | 7 | 8097 | 1 |
| CCF | 11 | 82044 | -1 |
| HURN | 12 | 30791 | 1 |
| FANH | 5 | 5514 | 1 |
| KIDS | 12 | 69579 | -1 |
| SYX | 15 | 29792 | 4 |
| FLGT | 6 | 32654 | 3 |
| Average | 9.7 | 36924 | 1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.7 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $54 million in RTLR’s case. Systemax Inc. (NYSE:SYX) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 5 bullish hedge fund positions. Rattler Midstream LP (NASDAQ:RTLR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RTLR is 25.5. 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. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on RTLR as the stock returned 52.7% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
