At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards NOW Inc (NYSE:DNOW).
Is NOW Inc (NYSE:DNOW) ready to rally soon? The smart money is getting less bullish. The number of bullish hedge fund positions dropped by 2 lately. Our calculations also showed that DNOW 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). DNOW was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with DNOW holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
At the moment there are a large number of methods investors can use to size up stocks. A couple of the most innovative methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can beat their index-focused peers by a solid amount (see the details here).
Jonathan Barrett of Luminus Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the fresh hedge fund action encompassing NOW Inc (NYSE:DNOW).
What have hedge funds been doing with NOW Inc (NYSE:DNOW)?
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in DNOW a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in NOW Inc (NYSE:DNOW). Renaissance Technologies has a $16.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Luminus Management, managed by Jonathan Barrett and Paul Segal, which holds a $10.9 million position; 1.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism comprise D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management and Jeremy Hosking’s Hosking Partners. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to NOW Inc (NYSE:DNOW), around 1.13% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 0.47 percent of its 13F equity portfolio to DNOW.
Due to the fact that NOW Inc (NYSE:DNOW) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers who sold off their entire stakes by the end of the first quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest stake of the 750 funds followed by Insider Monkey, totaling about $8.7 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $5.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds by the end of the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NOW Inc (NYSE:DNOW) but similarly valued. These stocks are TORM plc (NASDAQ:TRMD), Invesco Mortgage Capital Inc (NYSE:IVR), Ambac Financial Group, Inc. (NYSE:AMBC), and Collegium Pharmaceutical Inc (NASDAQ:COLL). This group of stocks’ market valuations are similar to DNOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRMD | 4 | 419530 | 1 |
| IVR | 15 | 19381 | 0 |
| AMBC | 15 | 51461 | 0 |
| COLL | 21 | 170373 | 2 |
| Average | 13.75 | 165186 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $55 million in DNOW’s case. Collegium Pharmaceutical Inc (NASDAQ:COLL) is the most popular stock in this table. On the other hand TORM plc (NASDAQ:TRMD) is the least popular one with only 4 bullish hedge fund positions. NOW Inc (NYSE:DNOW) 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on DNOW as the stock returned 65.1% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
