How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NXP Semiconductors NV (NASDAQ:NXPI) and determine whether hedge funds had an edge regarding this stock.
NXP Semiconductors NV (NASDAQ:NXPI) has seen a decrease in hedge fund sentiment of late. NXP Semiconductors NV (NASDAQ:NXPI) was in 51 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 93. There were 52 hedge funds in our database with NXPI positions at the end of the second quarter. Our calculations also showed that NXPI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Israel Englander of Millennium Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s go over the recent hedge fund action encompassing NXP Semiconductors NV (NASDAQ:NXPI).
Do Hedge Funds Think NXPI Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the second quarter of 2021. By comparison, 68 hedge funds held shares or bullish call options in NXPI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in NXP Semiconductors NV (NASDAQ:NXPI), which was worth $182.1 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $127.9 million worth of shares. Sessa Capital, Millennium 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 Mountain Road Advisors allocated the biggest weight to NXP Semiconductors NV (NASDAQ:NXPI), around 9.4% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, setting aside 5.59 percent of its 13F equity portfolio to NXPI.
Because NXP Semiconductors NV (NASDAQ:NXPI) has faced a decline in interest from hedge fund managers, logic holds that there is a sect of money managers who sold off their positions entirely heading into Q4. At the top of the heap, Brandon Haley’s Holocene Advisors sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $86.6 million in stock, and Robert Boucai’s Newbrook Capital Advisors was right behind this move, as the fund dropped about $19.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NXP Semiconductors NV (NASDAQ:NXPI) but similarly valued. These stocks are Ferrari N.V. (NYSE:RACE), Itau Unibanco Holding SA (NYSE:ITUB), Takeda Pharmaceutical Company Limited (NYSE:TAK), Prudential Public Limited Company (NYSE:PUK), Chipotle Mexican Grill, Inc. (NYSE:CMG), KLA Corporation (NASDAQ:KLAC), and DocuSign, Inc. (NASDAQ:DOCU). All of these stocks’ market caps resemble NXPI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RACE | 27 | 1177569 | 0 |
| ITUB | 16 | 379560 | 0 |
| TAK | 15 | 443627 | -4 |
| PUK | 4 | 10147 | 0 |
| CMG | 39 | 3687748 | 4 |
| KLAC | 44 | 1844123 | -1 |
| DOCU | 51 | 4238147 | -7 |
| Average | 28 | 1682989 | -1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1683 million. That figure was $1081 million in NXPI’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 bullish hedge fund positions. NXP Semiconductors NV (NASDAQ:NXPI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NXPI is 70.5. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on NXPI as the stock returned 5.2% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.
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Disclosure: None. This article was originally published at Insider Monkey.
