NextCure, Inc. (NXTC): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of NextCure, Inc. (NASDAQ:NXTC) based on that data.

NextCure, Inc. (NASDAQ:NXTC) was in 14 hedge funds’ portfolios at the end of the first quarter of 2020. NXTC shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 17 hedge funds in our database with NXTC positions at the end of the previous quarter. Our calculations also showed that NXTC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Jeffrey Ray - Great Point Partners

Jeffrey Jay of Great Point Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the new hedge fund action regarding NextCure, Inc. (NASDAQ:NXTC).

Hedge fund activity in NextCure, Inc. (NASDAQ:NXTC)

At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NXTC over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in NextCure, Inc. (NASDAQ:NXTC) was held by OrbiMed Advisors, which reported holding $100.5 million worth of stock at the end of September. It was followed by Great Point Partners with a $48.7 million position. Other investors bullish on the company included Hillhouse Capital Management, Cormorant Asset Management, and Duquesne Capital. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to NextCure, Inc. (NASDAQ:NXTC), around 5.09% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, dishing out 1.69 percent of its 13F equity portfolio to NXTC.

Because NextCure, Inc. (NASDAQ:NXTC) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q4. Intriguingly, Julian Baker and Felix Baker’s Baker Bros. Advisors dumped the biggest investment of all the hedgies watched by Insider Monkey, worth close to $8.5 million in stock. D. E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $1.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NextCure, Inc. (NASDAQ:NXTC) but similarly valued. These stocks are Red Rock Resorts, Inc. (NASDAQ:RRR), Atkore International Group Inc. (NYSE:ATKR), The St. Joe Company (NYSE:JOE), and The Liberty Braves Group (NASDAQ:BATRA). This group of stocks’ market valuations resemble NXTC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RRR 25 158626 7
ATKR 13 59916 -10
JOE 11 490794 1
BATRA 11 55016 1
Average 15 191088 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $235 million in NXTC’s case. Red Rock Resorts, Inc. (NASDAQ:RRR) is the most popular stock in this table. On the other hand The St. Joe Company (NYSE:JOE) is the least popular one with only 11 bullish hedge fund positions. NextCure, Inc. (NASDAQ:NXTC) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately NXTC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NXTC investors were disappointed as the stock returned -36.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.