We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether National Fuel Gas Company (NYSE:NFG) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
National Fuel Gas Company (NYSE:NFG) investors should be aware of an increase in hedge fund interest recently. NFG was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with NFG positions at the end of the previous quarter. Our calculations also showed that NFG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Philippe Laffont of Coatue Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the latest hedge fund action surrounding National Fuel Gas Company (NYSE:NFG).
What have hedge funds been doing with National Fuel Gas Company (NYSE:NFG)?
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in NFG a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in National Fuel Gas Company (NYSE:NFG) was held by GAMCO Investors, which reported holding $95.5 million worth of stock at the end of September. It was followed by Winton Capital Management with a $16.5 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and Private Capital Management. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to National Fuel Gas Company (NYSE:NFG), around 1.82% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 0.76 percent of its 13F equity portfolio to NFG.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Weld Capital Management, managed by Minhua Zhang, established the most valuable position in National Fuel Gas Company (NYSE:NFG). Weld Capital Management had $1.6 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also made a $0.7 million investment in the stock during the quarter. The following funds were also among the new NFG investors: Matthew L Pinz’s Pinz Capital and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as National Fuel Gas Company (NYSE:NFG) but similarly valued. These stocks are frontdoor, inc. (NASDAQ:FTDR), Five9 Inc (NASDAQ:FIVN), Equity Commonwealth (NYSE:EQC), and Service Properties Trust (NASDAQ:SVC). All of these stocks’ market caps are similar to NFG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTDR | 37 | 681826 | -2 |
| FIVN | 35 | 632108 | 2 |
| EQC | 22 | 140966 | -4 |
| SVC | 17 | 59382 | 2 |
| Average | 27.75 | 378571 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $179 million in NFG’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Service Properties Trust (NASDAQ:SVC) is the least popular one with only 17 bullish hedge fund positions. National Fuel Gas Company (NYSE:NFG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately NFG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NFG investors were disappointed as the stock returned -24.9% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
