Hedge Funds Aren’t Crazy About Northrop Grumman Corporation (NOC) Anymore

Is Northrop Grumman Corporation (NYSE:NOC) now a sell?

Now, according to many of your peers, hedge funds are seen as bloated, outdated investment vehicles of an era lost to time. Although there are more than 8,000 hedge funds trading in present day, this site looks at the elite of this club, close to 525 funds. It is widely held that this group has its hands on the lion’s share of all hedge funds’ total capital, and by keeping an eye on their best picks, we’ve found a number of investment strategies that have historically beaten the S&P 500. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Equally as useful, positive insider trading activity is another way to look at the world of equities. As the old adage goes: there are many stimuli for a bullish insider to get rid of shares of his or her company, but just one, very simple reason why they would behave bullishly. Many empirical studies have demonstrated the market-beating potential of this strategy if shareholders understand what to do (learn more here).

Thus, we’re going to examine the latest info surrounding Northrop Grumman Corporation (NYSE:NOC).

What does the smart money think about Northrop Grumman Corporation (NYSE:NOC)?

Heading into Q3, a total of 24 of the hedge funds we track held long positions in this stock, a change of -14% from the previous quarter. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes substantially.

According to our 13F database, Matt McLennan’s First Eagle Investment Management had the largest position in Northrop Grumman Corporation (NYSE:NOC), worth close to $649.3 million, comprising 2% of its total 13F portfolio. Coming in second is Natixis Global Asset Management of Harris Associates, with a $396.1 million position; 0.8% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Richard S. Pzena’s Pzena Investment Management, Cliff Asness’s AQR Capital Management and Ken Griffin’s Citadel Investment Group.

Judging by the fact that Northrop Grumman Corporation (NYSE:NOC) has experienced declining interest from the smart money’s best and brightest, we can see that there was a specific group of hedge funds that elected to cut their positions entirely at the end of the second quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest stake of the “upper crust” of funds we monitor, valued at an estimated $46.3 million in stock. Jonathon Jacobson’s fund, Highfields Capital Management, also dumped its stock, about $30.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds at the end of the second quarter.

How have insiders been trading Northrop Grumman Corporation (NYSE:NOC)?

Insider buying made by high-level executives is most useful when the primary stock in question has experienced transactions within the past six months. Over the latest six-month time frame, Northrop Grumman Corporation (NYSE:NOC) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll also review the relationship between both of these indicators in other stocks similar to Northrop Grumman Corporation (NYSE:NOC). These stocks are Gencorp Inc (NYSE:GY), AerCap Holdings N.V. (NYSE:AER), Textron Inc. (NYSE:TXT), and Raytheon Company (NYSE:RTN). This group of stocks are the members of the aerospace/defense – major diversified industry and their market caps are closest to NOC’s market cap.

Using the results shown by the previously mentioned research, regular investors must always keep one eye on hedge fund and insider trading sentiment, and Northrop Grumman Corporation (NYSE:NOC) is an important part of this process.

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