Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like NCR Corporation (NYSE:NCR).
NCR Corporation (NYSE:NCR) investors should be aware of an increase in support from the world’s most elite money managers of late. Our calculations also showed that NCR isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to review the recent hedge fund action surrounding NCR Corporation (NYSE:NCR).
How are hedge funds trading NCR Corporation (NYSE:NCR)?
At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the fourth quarter of 2018. By comparison, 21 hedge funds held shares or bullish call options in NCR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in NCR Corporation (NYSE:NCR) was held by Nitorum Capital, which reported holding $43 million worth of stock at the end of March. It was followed by Balyasny Asset Management with a $31.7 million position. Other investors bullish on the company included Engaged Capital, Nishkama Capital, and D E Shaw.
As industrywide interest jumped, specific money managers were breaking ground themselves. Prana Capital Management, managed by Peter Seuss, initiated the biggest position in NCR Corporation (NYSE:NCR). Prana Capital Management had $10.6 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also made a $10.5 million investment in the stock during the quarter. The following funds were also among the new NCR investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Brandon Haley’s Holocene Advisors, 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 NCR Corporation (NYSE:NCR) but similarly valued. We will take a look at Cabot Microelectronics Corporation (NASDAQ:CCMP), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), Taubman Centers, Inc. (NYSE:TCO), and Qualys Inc (NASDAQ:QLYS). This group of stocks’ market caps are similar to NCR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCMP | 17 | 273525 | -3 |
| CSOD | 29 | 644787 | -2 |
| TCO | 14 | 205038 | -6 |
| QLYS | 14 | 144956 | -3 |
| Average | 18.5 | 317077 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $251 million in NCR’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Taubman Centers, Inc. (NYSE:TCO) is the least popular one with only 14 bullish hedge fund positions. NCR Corporation (NYSE:NCR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on NCR as the stock returned 14.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
