Is Napco Security Technologies Inc (NSSC) A Good Stock To Buy?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Napco Security Technologies Inc (NASDAQ:NSSC).

Is NSSC a good stock to buy? Napco Security Technologies Inc (NASDAQ:NSSC) shareholders have witnessed a decrease in enthusiasm from smart money of late. Napco Security Technologies Inc (NASDAQ:NSSC) was in 4 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 11. There were 6 hedge funds in our database with NSSC holdings at the end of December. Our calculations also showed that NSSC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to check out the fresh hedge fund action regarding Napco Security Technologies Inc (NASDAQ:NSSC).

Do Hedge Funds Think NSSC Is A Good Stock To Buy Now?

At first quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NSSC over the last 23 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Roubaix Capital, managed by Christopher Hillary, holds the largest position in Napco Security Technologies Inc (NASDAQ:NSSC). Roubaix Capital has a $3.1 million position in the stock, comprising 2.1% of its 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $1.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Israel Englander’s Millennium Management, Matthew Hulsizer’s PEAK6 Capital Management and . In terms of the portfolio weights assigned to each position Roubaix Capital allocated the biggest weight to Napco Security Technologies Inc (NASDAQ:NSSC), around 2.07% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.0023 percent of its 13F equity portfolio to NSSC.

Due to the fact that Napco Security Technologies Inc (NASDAQ:NSSC) has faced falling interest from the smart money, it’s easy to see that there is a sect of hedge funds that elected to cut their positions entirely heading into Q2. Intriguingly, Matthew Halbower’s Pentwater Capital Management said goodbye to the largest investment of the 750 funds followed by Insider Monkey, comprising an estimated $1.2 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $0.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q2.

Let’s now review hedge fund activity in other stocks similar to Napco Security Technologies Inc (NASDAQ:NSSC). These stocks are MeiraGTx Holdings plc (NASDAQ:MGTX), Arch Resources, Inc. (NYSE:ARCH), FutureFuel Corp. (NYSE:FF), Sify Technologies Limited (NASDAQ:SIFY), Carriage Services, Inc. (NYSE:CSV), China Yuchai International Limited (NYSE:CYD), and Bicycle Therapeutics plc (NASDAQ:BCYC). This group of stocks’ market caps resemble NSSC’s market cap.

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As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $6 million in NSSC’s case. Arch Resources, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Sify Technologies Limited (NASDAQ:SIFY) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Napco Security Technologies Inc (NASDAQ:NSSC) is even less popular than SIFY. Our overall hedge fund sentiment score for NSSC is 13.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards NSSC. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately NSSC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); NSSC investors were disappointed as the stock returned -1.6% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.