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Were Hedge Funds Right About Betting On Nexstar Media Group, Inc. (NXST)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNexstar Media Group, Inc. (NASDAQ:NXST) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Nexstar Media Group, Inc. (NASDAQ:NXST) the right pick for your portfolio? The smart money was in an optimistic mood. The number of long hedge fund bets increased by 1 in recent months. Our calculations also showed that NXST 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.

Navroz Udwadia - Falcon Edge Capital

Navroz Udwadia of Falcon Edge Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now we’re going to go over the recent hedge fund action encompassing Nexstar Media Group, Inc. (NASDAQ:NXST).

How have hedgies been trading Nexstar Media Group, Inc. (NASDAQ:NXST)?

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in NXST a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Seth Klarman’s Baupost Group has the biggest position in Nexstar Media Group, Inc. (NASDAQ:NXST), worth close to $120.4 million, corresponding to 1.8% of its total 13F portfolio. Sitting at the No. 2 spot is P2 Capital Partners, managed by Claus Moller, which holds a $98.2 million position; 11.7% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish consist of Peter S. Park’s Park West Asset Management, Jonathan Auerbach’s Hound Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Nexstar Media Group, Inc. (NASDAQ:NXST), around 15.46% of its 13F portfolio. Billings Capital Management is also relatively very bullish on the stock, designating 13.63 percent of its 13F equity portfolio to NXST.

Consequently, specific money managers were breaking ground themselves. Alden Global Capital, managed by Randall Smith, created the largest position in Nexstar Media Group, Inc. (NASDAQ:NXST). Alden Global Capital had $15.1 million invested in the company at the end of the quarter. Edward Goodnow’s Goodnow Investment Group also initiated a $7.4 million position during the quarter. The following funds were also among the new NXST investors: Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, Eric F. Billings’s Billings Capital Management, and Ian Simm’s Impax Asset Management.

Let’s go over hedge fund activity in other stocks similar to Nexstar Media Group, Inc. (NASDAQ:NXST). These stocks are Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Medpace Holdings, Inc. (NASDAQ:MEDP), Ultrapar Participacoes SA (NYSE:UGP), and Braskem SA (NYSE:BAK). This group of stocks’ market caps are similar to NXST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHI 3 11620 0
MEDP 17 183270 0
UGP 5 25895 0
BAK 6 23630 1
Average 7.75 61104 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $663 million in NXST’s case. Medpace Holdings, Inc. (NASDAQ:MEDP) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Nexstar Media Group, Inc. (NASDAQ:NXST) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on NXST as the stock returned 46.2% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.