Did Hedge Funds Make The Right Call On National Oilwell Varco, Inc. (NOV) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of National Oilwell Varco, Inc. (NYSE:NOV) based on that data and determine whether they were really smart about the stock.

Is National Oilwell Varco, Inc. (NYSE:NOV) a safe investment now? The smart money was in a pessimistic mood. The number of long hedge fund bets went down by 2 lately. Our calculations also showed that NOV isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the recent hedge fund action surrounding National Oilwell Varco, Inc. (NYSE:NOV).

How have hedgies been trading National Oilwell Varco, Inc. (NYSE:NOV)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in NOV 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, Pzena Investment Management held the most valuable stake in National Oilwell Varco, Inc. (NYSE:NOV), which was worth $312.8 million at the end of the third quarter. On the second spot was Oldfield Partners which amassed $48.8 million worth of shares. Ariel Investments, Millennium 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 Oldfield Partners allocated the biggest weight to National Oilwell Varco, Inc. (NYSE:NOV), around 6.18% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, earmarking 5.01 percent of its 13F equity portfolio to NOV.

Due to the fact that National Oilwell Varco, Inc. (NYSE:NOV) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers who sold off their positions entirely heading into Q4. Interestingly, Brandon Haley’s Holocene Advisors cut the largest stake of the 750 funds tracked by Insider Monkey, valued at close to $10.1 million in stock, and Sara Nainzadeh’s Centenus Global Management was right behind this move, as the fund dropped about $3.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to National Oilwell Varco, Inc. (NYSE:NOV). We will take a look at AppFolio Inc (NASDAQ:APPF), Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), Integra Lifesciences Holdings Corp (NASDAQ:IART), and Healthcare Realty Trust Inc (NYSE:HR). All of these stocks’ market caps are similar to NOV’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $440 million. That figure was $476 million in NOV’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Healthcare Realty Trust Inc (NYSE:HR) is the least popular one with only 11 bullish hedge fund positions. National Oilwell Varco, Inc. (NYSE:NOV) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on NOV, though not to the same extent, as the stock returned 24.6% during the second quarter and outperformed the market as well.

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