Were Hedge Funds Right About NexTier Oilfield Solutions Inc. (NEX)?

Asma UL Husna

Sat, May 9, 2020, 7:20 PM 6 min read

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider NexTier Oilfield Solutions Inc. (NYSE:NEX) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is NexTier Oilfield Solutions Inc. (NYSE:NEX) an outstanding investment now? The best stock pickers are buying. The number of bullish hedge fund positions improved by 6 lately. Our calculations also showed that NEX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). NEX was in 29 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 23 hedge funds in our database with NEX positions at the end of the previous quarter.

[caption id="attachment_769795" align="aligncenter" width="397"]

Stephen Feinberg of Cerberus Capital Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to go over the new hedge fund action encompassing NexTier Oilfield Solutions Inc. (NYSE:NEX).

Hedge fund activity in NexTier Oilfield Solutions Inc. (NYSE:NEX)

Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NEX over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in NexTier Oilfield Solutions Inc. (NYSE:NEX) was held by Cerberus Capital Management, which reported holding $268.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $57.9 million position. Other investors bullish on the company included Pzena Investment Management, Citadel Investment Group, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Cerberus Capital Management allocated the biggest weight to NexTier Oilfield Solutions Inc. (NYSE:NEX), around 32.98% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, earmarking 15.04 percent of its 13F equity portfolio to NEX.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into NexTier Oilfield Solutions Inc. (NYSE:NEX) headfirst. Pzena Investment Management, managed by Richard S. Pzena, created the biggest position in NexTier Oilfield Solutions Inc. (NYSE:NEX). Pzena Investment Management had $52.8 million invested in the company at the end of the quarter. Matthew Barrett's Glendon Capital Management also initiated a $16.3 million position during the quarter. The following funds were also among the new NEX investors: Anand Parekh's Alyeska Investment Group, Matt Smith's Deep Basin Capital, and Mark Coe's Intrinsic Edge Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as NexTier Oilfield Solutions Inc. (NYSE:NEX) but similarly valued. These stocks are Armada Hoffler Properties Inc (NYSE:AHH), Monmouth R.E. Inv. Corp. (NYSE:MNR), Dine Brands Global, Inc. (NYSE:DIN), and Sleep Number Corporation (NASDAQ:SNBR). This group of stocks' market valuations resemble NEX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AHH,6,81469,-9 MNR,14,77143,3 DIN,20,177876,3 SNBR,20,190994,2 Average,15,131871,-0.25 [/table]

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 $132 million. That figure was $564 million in NEX's case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand Armada Hoffler Properties Inc (NYSE:AHH) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks NexTier Oilfield Solutions Inc. (NYSE:NEX) 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 gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately NEX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NEX were disappointed as the stock returned -65.4% during the four months of 2020 (through May 1st) 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.