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 National CineMedia, Inc. (NASDAQ:NCMI) and determine whether hedge funds had an edge regarding this stock.
National CineMedia, Inc. (NASDAQ:NCMI) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 20. NCMI has experienced an increase in hedge fund interest recently. There were 14 hedge funds in our database with NCMI holdings at the end of March. Our calculations also showed that NCMI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s take a look at the fresh hedge fund action regarding National CineMedia, Inc. (NASDAQ:NCMI).
What does smart money think about National CineMedia, Inc. (NASDAQ:NCMI)?
At the end of June, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NCMI over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Greenhouse Funds was the largest shareholder of National CineMedia, Inc. (NASDAQ:NCMI), with a stake worth $11.6 million reported as of the end of September. Trailing Greenhouse Funds was Renaissance Technologies, which amassed a stake valued at $6 million. Arrowstreet Capital, Citadel Investment Group, and Hudson Bay Capital Management 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 Greenhouse Funds allocated the biggest weight to National CineMedia, Inc. (NASDAQ:NCMI), around 1.73% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to NCMI.
As one would reasonably expect, key hedge funds have been driving this bullishness. Hudson Bay Capital Management, managed by Sander Gerber, initiated the biggest position in National CineMedia, Inc. (NASDAQ:NCMI). Hudson Bay Capital Management had $1.6 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.9 million position during the quarter. The following funds were also among the new NCMI investors: Donald Sussman’s Paloma Partners, Bruce Kovner’s Caxton Associates LP, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as National CineMedia, Inc. (NASDAQ:NCMI) but similarly valued. These stocks are Xunlei Ltd (NASDAQ:XNET), RedHill Biopharma Ltd (NASDAQ:RDHL), Misonix, Inc. (NASDAQ:MSON), Southern National Bancorp of Virginia, Inc (NASDAQ:SONA), PennantPark Investment Corp. (NASDAQ:PNNT), Jounce Therapeutics, Inc. (NASDAQ:JNCE), and Remark Holdings, Inc. (NASDAQ:MARK). This group of stocks’ market caps are similar to NCMI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XNET | 5 | 2110 | 1 |
| RDHL | 2 | 847 | 0 |
| MSON | 7 | 22227 | -2 |
| SONA | 10 | 11094 | 0 |
| PNNT | 6 | 8899 | -2 |
| JNCE | 12 | 11303 | 2 |
| MARK | 5 | 2332 | 3 |
| Average | 6.7 | 8402 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $27 million in NCMI’s case. Jounce Therapeutics, Inc. (NASDAQ:JNCE) is the most popular stock in this table. On the other hand RedHill Biopharma Ltd (NASDAQ:RDHL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks National CineMedia, Inc. (NASDAQ:NCMI) is more popular among hedge funds. Our overall hedge fund sentiment score for NCMI is 86. 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 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately NCMI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NCMI were disappointed as the stock returned -6.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
