“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards EnPro Industries, Inc. (NYSE:NPO) and see how it was affected.
EnPro Industries, Inc. (NYSE:NPO) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that NPO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Paul Marshall of Marshall Wace
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the fresh hedge fund action regarding EnPro Industries, Inc. (NYSE:NPO).
What have hedge funds been doing with EnPro Industries, Inc. (NYSE:NPO)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the second quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in NPO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Mario Gabelli’s GAMCO Investors has the biggest position in EnPro Industries, Inc. (NYSE:NPO), worth close to $86.5 million, comprising 0.7% of its total 13F portfolio. The second largest stake is held by Paul Marshall and Ian Wace of Marshall Wace, with a $10.5 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise Noam Gottesman’s GLG Partners, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to EnPro Industries, Inc. (NYSE:NPO), around 0.72% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to NPO.
As one would reasonably expect, some big names have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, initiated the most outsized call position in EnPro Industries, Inc. (NYSE:NPO). PEAK6 Capital Management had $1.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $1 million position during the quarter. The other funds with brand new NPO positions are David Harding’s Winton Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Thomas Bailard’s Bailard Inc.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as EnPro Industries, Inc. (NYSE:NPO) but similarly valued. These stocks are Brookdale Senior Living, Inc. (NYSE:BKD), Coherus Biosciences Inc (NASDAQ:CHRS), Presidio, Inc. (NASDAQ:PSDO), and Hercules Capital, Inc. (NYSE:HTGC). This group of stocks’ market values match NPO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BKD | 20 | 478052 | -2 |
| CHRS | 22 | 213990 | -5 |
| PSDO | 22 | 189614 | 3 |
| HTGC | 9 | 23447 | -3 |
| Average | 18.25 | 226276 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $128 million in NPO’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand Hercules Capital, Inc. (NYSE:HTGC) is the least popular one with only 9 bullish hedge fund positions. EnPro Industries, Inc. (NYSE:NPO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NPO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NPO investors were disappointed as the stock returned -3.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
