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Should You Avoid Altus Midstream Company (ALTM)?

Nina Todic

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Altus Midstream Company (NASDAQ:ALTM).

Is Altus Midstream Company (NASDAQ:ALTM) an attractive stock to buy now? Money managers are reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 2 lately. Our calculations also showed that ALTM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's view the recent hedge fund action surrounding Altus Midstream Company (NASDAQ:ALTM).

What does smart money think about Altus Midstream Company (NASDAQ:ALTM)?

Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in ALTM 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.

The largest stake in Altus Midstream Company (NASDAQ:ALTM) was held by Magnetar Capital, which reported holding $2.4 million worth of stock at the end of September. It was followed by Adage Capital Management with a $1.5 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Yaupon Capital. In terms of the portfolio weights assigned to each position Yaupon Capital allocated the biggest weight to Altus Midstream Company (NASDAQ:ALTM), around 0.22% of its 13F portfolio. Magnetar Capital is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to ALTM.

Seeing as Altus Midstream Company (NASDAQ:ALTM) has experienced a decline in interest from the smart money, logic holds that there is a sect of hedge funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Kevin Michael Ulrich and Anthony Davis's Anchorage Advisors dropped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $9.1 million in stock. Steve Cohen's fund, Point72 Asset Management, also cut its stock, about $4.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Altus Midstream Company (NASDAQ:ALTM) but similarly valued. These stocks are Select Energy Services, Inc. (NYSE:WTTR), Stewart Information Services Corporation (NYSE:STC), Kforce Inc. (NASDAQ:KFRC), and HarborOne Bancorp, Inc. (NASDAQ:HONE). This group of stocks' market caps resemble ALTM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTTR,10,23231,-1 STC,17,92374,4 KFRC,19,78540,1 HONE,11,24308,7 Average,14.25,54613,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $6 million in ALTM's case. Kforce Inc. (NASDAQ:KFRC) is the most popular stock in this table. On the other hand Select Energy Services, Inc. (NYSE:WTTR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Altus Midstream Company (NASDAQ:ALTM) is even less popular than WTTR. Hedge funds dodged a bullet by taking a bearish stance towards ALTM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ALTM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ALTM investors were disappointed as the stock returned -31.8% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

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

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