Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards NOW Inc (NYSE:DNOW).
NOW Inc (NYSE:DNOW) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistic is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DNOW has experienced an increase in support from the world’s most elite money managers of late. There were 18 hedge funds in our database with DNOW holdings at the end of March. Our calculations also showed that DNOW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 percentage points since March 2017 (see the details here). 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, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Now we’re going to view the latest hedge fund action regarding NOW Inc (NYSE:DNOW).
Do Hedge Funds Think DNOW Is A Good Stock To Buy Now?
At second quarter’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DNOW over the last 24 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.
More specifically, Renaissance Technologies was the largest shareholder of NOW Inc (NYSE:DNOW), with a stake worth $51.1 million reported as of the end of June. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $20.6 million. Arrowstreet Capital, Two Sigma Advisors, and Hosking Partners 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 Algert Global allocated the biggest weight to NOW Inc (NYSE:DNOW), around 0.13% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to DNOW.
As one would reasonably expect, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most outsized position in NOW Inc (NYSE:DNOW). Millennium Management had $3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Mark McMeans’s Brasada Capital Management, Peter Muller’s PDT Partners, and Matthew L Pinz’s Pinz Capital.
Let’s check out hedge fund activity in other stocks similar to NOW Inc (NYSE:DNOW). We will take a look at Pliant Therapeutics, Inc. (NASDAQ:PLRX), Apogee Enterprises, Inc. (NASDAQ:APOG), Caleres Inc (NYSE:CAL), Investors Real Estate Trust (NYSE:CSR), Hailiang Education Group Inc. (NASDAQ:HLG), ConnectOne Bancorp Inc (NASDAQ:CNOB), and Inhibrx, Inc. (NASDAQ:INBX). This group of stocks’ market valuations match DNOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLRX | 12 | 182655 | 3 |
| APOG | 9 | 24274 | 0 |
| CAL | 18 | 80797 | 0 |
| CSR | 6 | 51232 | 1 |
| HLG | 1 | 3807 | 0 |
| CNOB | 15 | 42238 | 5 |
| INBX | 11 | 248577 | 1 |
| Average | 10.3 | 90511 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.3 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $108 million in DNOW’s case. Caleres Inc (NYSE:CAL) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks NOW Inc (NYSE:DNOW) is more popular among hedge funds. Our overall hedge fund sentiment score for DNOW is 89. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately DNOW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DNOW were disappointed as the stock returned -19.4% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
