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 Neogen Corporation (NASDAQ:NEOG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Neogen Corporation (NASDAQ:NEOG) the right investment to pursue these days? The smart money is becoming more confident. The number of long hedge fund positions advanced by 1 in recent months. Our calculations also showed that NEOG 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). NEOG was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 15 hedge funds in our database with NEOG holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Harding of Winton Capital 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. Keeping this in mind let’s analyze the latest hedge fund action encompassing Neogen Corporation (NASDAQ:NEOG).
How are hedge funds trading Neogen Corporation (NASDAQ:NEOG)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in NEOG over the last 18 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.
The largest stake in Neogen Corporation (NASDAQ:NEOG) was held by D E Shaw, which reported holding $6.3 million worth of stock at the end of September. It was followed by Winton Capital Management with a $2.1 million position. Other investors bullish on the company included Royce & Associates, GAMCO Investors, and Holocene Advisors. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Neogen Corporation (NASDAQ:NEOG), around 0.53% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to NEOG.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, assembled the largest position in Neogen Corporation (NASDAQ:NEOG). Winton Capital Management had $2.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Frederick DiSanto’s Ancora Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Neogen Corporation (NASDAQ:NEOG) but similarly valued. These stocks are CRISPR Therapeutics AG (NASDAQ:CRSP), Lithia Motors Inc (NYSE:LAD), Cimpress NV (NASDAQ:CMPR), and Equitrans Midstream Corporation (NYSE:ETRN). This group of stocks’ market values are similar to NEOG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRSP | 30 | 297776 | 13 |
| LAD | 29 | 661944 | 3 |
| CMPR | 18 | 707978 | 6 |
| ETRN | 15 | 379764 | -2 |
| Average | 23 | 511866 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $18 million in NEOG’s case. CRISPR Therapeutics AG (NASDAQ:CRSP) is the most popular stock in this table. On the other hand Equitrans Midstream Corporation (NYSE:ETRN) is the least popular one with only 15 bullish hedge fund positions. Neogen Corporation (NASDAQ:NEOG) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on NEOG as the stock returned -13.9% during the same time period and outperformed the market by an even larger margin.
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.
