Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards National Oilwell Varco, Inc. (NYSE:NOV).
National Oilwell Varco, Inc. (NYSE:NOV) was in 22 hedge funds’ portfolios at the end of the second quarter of 2019. NOV has seen an increase in support from the world’s most elite money managers of late. There were 18 hedge funds in our database with NOV positions at the end of the previous quarter. Our calculations also showed that NOV isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the new hedge fund action encompassing National Oilwell Varco, Inc. (NYSE:NOV).
How are hedge funds trading National Oilwell Varco, Inc. (NYSE:NOV)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NOV over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in National Oilwell Varco, Inc. (NYSE:NOV) was held by Pzena Investment Management, which reported holding $538.5 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $46.8 million position. Other investors bullish on the company included Renaissance Technologies, Select Equity Group, and Ariel Investments.
As aggregate interest increased, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the biggest position in National Oilwell Varco, Inc. (NYSE:NOV). Point72 Asset Management had $46.8 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also initiated a $17.5 million position during the quarter. The other funds with brand new NOV positions are Ken Fisher’s Fisher Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to National Oilwell Varco, Inc. (NYSE:NOV). These stocks are Levi Strauss & Co. (NYSE:LEVI), Athene Holding Ltd. (NYSE:ATH), LKQ Corporation (NASDAQ:LKQ), and Guidewire Software Inc (NYSE:GWRE). This group of stocks’ market valuations resemble NOV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEVI | 15 | 74009 | -10 |
| ATH | 39 | 1352955 | 4 |
| LKQ | 45 | 955700 | 2 |
| GWRE | 22 | 691982 | -4 |
| Average | 30.25 | 768662 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $769 million. That figure was $755 million in NOV’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Levi Strauss & Co. (NYSE:LEVI) is the least popular one with only 15 bullish hedge fund positions. National Oilwell Varco, Inc. (NYSE:NOV) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NOV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NOV investors were disappointed as the stock returned -4.4% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
