How do we determine whether Quintana Energy Services Inc. (NYSE:QES) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Quintana Energy Services Inc. (NYSE:QES) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Lonestar Resources US Inc. (NASDAQ:LONE), Sharps Compliance Corp. (NASDAQ:SMED), and Acme United Corporation (NYSE:ACU) to gather more data points. Our calculations also showed that QES isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_140292" align="aligncenter" width="424"] Israel Englander of Millennium Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the fresh hedge fund action regarding Quintana Energy Services Inc. (NYSE:QES).
What does smart money think about Quintana Energy Services Inc. (NYSE:QES)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards QES over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Melqart Asset Management held the most valuable stake in Quintana Energy Services Inc. (NYSE:QES), which was worth $6.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $0.1 million worth of shares. Renaissance Technologies was 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 Melqart Asset Management allocated the biggest weight to Quintana Energy Services Inc. (NYSE:QES), around 0.61% of its portfolio. Millennium Management is also relatively very bullish on the stock, setting aside 0.0002 percent of its 13F equity portfolio to QES.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks similar to Quintana Energy Services Inc. (NYSE:QES). These stocks are Lonestar Resources US Inc. (NASDAQ:LONE), Sharps Compliance Corp. (NASDAQ:SMED), Acme United Corporation (NYSE:ACU), and 180 Degree Capital Corp. (NASDAQ:TURN). All of these stocks' market caps resemble QES's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LONE,4,12152,-1 SMED,1,2013,0 ACU,2,6006,0 TURN,2,7328,0 Average,2.25,6875,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $7 million in QES's case. Lonestar Resources US Inc. (NASDAQ:LONE) is the most popular stock in this table. On the other hand Sharps Compliance Corp. (NASDAQ:SMED) is the least popular one with only 1 bullish hedge fund positions. Quintana Energy Services Inc. (NYSE:QES) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on QES as the stock returned 13.7% during the fourth quarter (through 11/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.