Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is NACCO Industries, Inc. (NYSE:NC) a buy, sell, or hold? Hedge funds are becoming hopeful. The number of long hedge fund positions increased by 2 recently. Our calculations also showed that NC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NC was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with NC holdings at the end of the previous quarter.
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to analyze the latest hedge fund action encompassing NACCO Industries, Inc. (NYSE:NC).
Hedge fund activity in NACCO Industries, Inc. (NYSE:NC)
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NC over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in NACCO Industries, Inc. (NYSE:NC), which was worth $20 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $0.9 million worth of shares. D E Shaw, Two Sigma Advisors, and Millennium 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 Zebra Capital Management allocated the biggest weight to NACCO Industries, Inc. (NYSE:NC), around 0.22% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to NC.
As one would reasonably expect, key money managers have jumped into NACCO Industries, Inc. (NYSE:NC) headfirst. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in NACCO Industries, Inc. (NYSE:NC). Citadel Investment Group had $0.3 million invested in the company at the end of the quarter. Roger Ibbotson’s Zebra Capital Management also made a $0.2 million investment in the stock during the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NACCO Industries, Inc. (NYSE:NC) but similarly valued. These stocks are Village Farms International, Inc. (NASDAQ:VFF), Heritage Insurance Holdings Inc (NYSE:HRTG), Oxford Immunotec Global PLC (NASDAQ:OXFD), and Pennsylvania Real Estate Investment Trust (NYSE:PEI). This group of stocks’ market values are closest to NC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VFF | 5 | 4688 | 1 |
| HRTG | 9 | 48243 | -5 |
| OXFD | 19 | 194524 | 3 |
| PEI | 5 | 8826 | -1 |
| Average | 9.5 | 64070 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $24 million in NC’s case. Oxford Immunotec Global PLC (NASDAQ:OXFD) is the most popular stock in this table. On the other hand Village Farms International, Inc. (NASDAQ:VFF) is the least popular one with only 5 bullish hedge fund positions. NACCO Industries, Inc. (NYSE:NC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NC were disappointed as the stock returned -26% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
