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Here is What Hedge Funds Think About Nexgen Energy Ltd. (NXE)

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Debasis Saha
·6 min read
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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Nexgen Energy Ltd. (NYSE:NXE).

Is Nexgen Energy Ltd. (NYSE:NXE) ready to rally soon? Money managers were becoming less hopeful. The number of long hedge fund bets went down by 1 in recent months. Nexgen Energy Ltd. (NYSE:NXE) was in 6 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 8. Our calculations also showed that NXE 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).

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 66 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.

Michael Hintze CQS Cayman
Michael Hintze CQS Cayman

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 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Keeping this in mind let's take a glance at the new hedge fund action encompassing Nexgen Energy Ltd. (NYSE:NXE).

What have hedge funds been doing with Nexgen Energy Ltd. (NYSE:NXE)?

At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXE over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NXE A Good Stock To Buy?
Is NXE A Good Stock To Buy?

More specifically, Falcon Edge Capital was the largest shareholder of Nexgen Energy Ltd. (NYSE:NXE), with a stake worth $13.4 million reported as of the end of September. Trailing Falcon Edge Capital was CQS Cayman LP, which amassed a stake valued at $10.2 million. Sprott Asset Management, Mountain Lake Investment Management, and Citadel Investment Group 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 CQS Cayman LP allocated the biggest weight to Nexgen Energy Ltd. (NYSE:NXE), around 1.36% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, setting aside 1.17 percent of its 13F equity portfolio to NXE.

Because Nexgen Energy Ltd. (NYSE:NXE) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Michael A. Price and Amos Meron's Empyrean Capital Partners cut the largest position of all the hedgies tracked by Insider Monkey, valued at about $5.2 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dumped about $0 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Nexgen Energy Ltd. (NYSE:NXE). We will take a look at Scorpio Tankers Inc. (NYSE:STNG), TPG RE Finance Trust, Inc. (NYSE:TRTX), Hibbett Sports, Inc. (NASDAQ:HIBB), Sculptor Capital Management, Inc. (NYSE:SCU), Apollo Medical Holdings, Inc. (NASDAQ:AMEH), Frequency Therapeutics, Inc. (NASDAQ:FREQ), and Crescent Point Energy Corp (NYSE:CPG). All of these stocks' market caps are similar to NXE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STNG,14,30314,-4 TRTX,13,74230,-1 HIBB,21,181894,0 SCU,13,60894,3 AMEH,7,3533,4 FREQ,7,88452,1 CPG,11,23697,2 Average,12.3,66145,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $28 million in NXE's case. Hibbett Sports, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand Apollo Medical Holdings, Inc. (NASDAQ:AMEH) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Nexgen Energy Ltd. (NYSE:NXE) is even less popular than AMEH. Our overall hedge fund sentiment score for NXE is 26.5. 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. Hedge funds dodged a bullet by taking a bearish stance towards NXE. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately NXE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NXE investors were disappointed as the stock returned 6.9% since the end of the third quarter (through 11/27) 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 most of these stocks already outperformed the market so far in 2020.

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

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