Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Is NortonLifeLock Inc. (NASDAQ:NLOK) a good stock to buy 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.
NortonLifeLock Inc. (NASDAQ:NLOK) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that NLOK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.
Jeffrey Smith of Starboard Value LP
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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a glance at the fresh hedge fund action regarding NortonLifeLock Inc. (NASDAQ:NLOK).
What have hedge funds been doing with NortonLifeLock Inc. (NASDAQ:NLOK)?
At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in NLOK over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Jeffrey Smith’s Starboard Value LP has the most valuable position in NortonLifeLock Inc. (NASDAQ:NLOK), worth close to $680.6 million, accounting for 19.7% of its total 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $142.6 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism contain David Costen Haley’s HBK Investments, Paul Marshall and Ian Wace’s Marshall Wace LLP and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Starboard Value LP allocated the biggest weight to NortonLifeLock Inc. (NASDAQ:NLOK), around 19.7% of its 13F portfolio. Portsea Asset Management is also relatively very bullish on the stock, earmarking 19.5 percent of its 13F equity portfolio to NLOK.
Consequently, key money managers have jumped into NortonLifeLock Inc. (NASDAQ:NLOK) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in NortonLifeLock Inc. (NASDAQ:NLOK). Marshall Wace LLP had $108.8 million invested in the company at the end of the quarter. Paul Singer’s Elliott Management also initiated a $68 million position during the quarter. The following funds were also among the new NLOK investors: Neal Nathani and Darren Dinneen’s Totem Point Management, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NortonLifeLock Inc. (NASDAQ:NLOK) but similarly valued. We will take a look at Roku, Inc. (NASDAQ:ROKU), Avangrid, Inc. (NYSE:AGR), Markel Corporation (NYSE:MKL), and The Cooper Companies, Inc. (NYSE:COO). This group of stocks’ market caps are similar to NLOK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROKU | 34 | 231771 | -5 |
| AGR | 19 | 370291 | 3 |
| MKL | 37 | 1409964 | 6 |
| COO | 28 | 764569 | -3 |
| Average | 29.5 | 694149 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $1624 million in NLOK’s case. Markel Corporation (NYSE:MKL) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks NortonLifeLock Inc. (NASDAQ:NLOK) is more popular among hedge funds. 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 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on NLOK as the stock returned 17.3% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.