Is Nine Energy Service, Inc. (NYSE:NINE) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Nine Energy Service, Inc. (NYSE:NINE) investors should be aware of an increase in support from the world's most elite money managers lately. Our calculations also showed that NINE 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_256989" align="aligncenter" width="600"] Dmitry Balyasny of Balyasny Asset Managemnet[/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. Now we're going to analyze the latest hedge fund action encompassing Nine Energy Service, Inc. (NYSE:NINE).
How have hedgies been trading Nine Energy Service, Inc. (NYSE:NINE)?
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NINE over the last 17 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.
Among these funds, Adage Capital Management held the most valuable stake in Nine Energy Service, Inc. (NYSE:NINE), which was worth $10.9 million at the end of the third quarter. On the second spot was Encompass Capital Advisors which amassed $3.3 million worth of shares. Proxima Capital Management, Balyasny Asset Management, and Renaissance Technologies 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 Proxima Capital Management allocated the biggest weight to Nine Energy Service, Inc. (NYSE:NINE), around 2.24% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, designating 0.22 percent of its 13F equity portfolio to NINE.
As aggregate interest increased, specific money managers were leading the bulls' herd. Renaissance Technologies, founded by Jim Simons, initiated the biggest position in Nine Energy Service, Inc. (NYSE:NINE). Renaissance Technologies had $0.4 million invested in the company at the end of the quarter. Roger Ibbotson's Zebra Capital Management also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin's Citadel Investment Group.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Nine Energy Service, Inc. (NYSE:NINE) but similarly valued. We will take a look at Richmond Mutual Bancorporation, Inc. (NASDAQ:RMBI), Lifetime Brands Inc (NASDAQ:LCUT), Energy Fuels Inc (NYSEAMERICAN:UUUU), and Unit Corporation (NYSE:UNT). This group of stocks' market caps are similar to NINE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RMBI,3,3736,3 LCUT,3,16247,0 UUUU,6,2448,-3 UNT,9,4396,1 Average,5.25,6707,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $17 million in NINE's case. Unit Corporation (NYSE:UNT) is the most popular stock in this table. On the other hand Richmond Mutual Bancorporation, Inc. (NASDAQ:RMBI) is the least popular one with only 3 bullish hedge fund positions. Nine Energy Service, Inc. (NYSE:NINE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NINE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NINE were disappointed as the stock returned -11.2% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.