Is Navigant Consulting, Inc. (NCI) Going to Burn These Hedge Funds?

It was a rough third quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during the quarter. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 14 percentage points between June 25 and October 30, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Navigant Consulting, Inc. (NYSE:NCI) during the quarter below.

Navigant Consulting, Inc. (NYSE:NCI)’s stock jumped in the third quarter and gained 8% between July and September, attracting more attention from smart money investors. With this in mind, we are going to take a closer look at the funds that amassed substantial stakes in NCI at the end of September and to get a better sense of its popularity, at the end of this article we will also compare NCI to other stocks including Resolute Forest Products Inc (NYSE:RFP), EZchip Semiconductor Ltd. (NASDAQ:EZCH), and Crossamerica Partners LP (NYSE:CAPL).

In the eyes of most shareholders, hedge funds are assumed to be slow, old financial tools of years past. While there are more than 8000 funds in operation today, Our researchers choose to focus on the elite of this group, approximately 700 funds. These money managers handle the majority of the smart money’s total capital, and by shadowing their finest equity investments, Insider Monkey has uncovered several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Keeping this in mind, we’re going to take a look at the new action regarding Navigant Consulting, Inc. (NYSE:NCI).

What does the smart money think about Navigant Consulting, Inc. (NYSE:NCI)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 25% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, SG Capital Management, managed by Ken Grossman and Glen Schneider, holds the biggest position in Navigant Consulting, Inc. (NYSE:NCI). SG Capital Management has a $14.6 million position in the stock, comprising 3.2% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $11.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism consist of D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management, and Mark Coe’s Coe Capital Management.

As industrywide interest jumped, some big names were breaking ground themselves. SG Capital Management initiated the largest position in Navigant Consulting, Inc. (NYSE:NCI). Coe Capital Management also made a $3.7 million investment in the stock during the quarter. The other funds with new positions in the stock are David Dreman’s Dreman Value Management, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Navigant Consulting, Inc. (NYSE:NCI) but similarly valued. We will take a look at Resolute Forest Products Inc (NYSE:RFP), EZchip Semiconductor Ltd. (NASDAQ:EZCH), Crossamerica Partners LP (NYSE:CAPL), and City Holding Company (NASDAQ:CHCO). All of these stocks’ market caps are similar to NCI’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $128 million, higher than the $55 million in NCI’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand Crossamerica Partners LP (NYSE:CAPL) is the least popular one with only 4 bullish hedge fund positions. Navigant Consulting, Inc. (NYSE:NCI) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RFP might be a better candidate to consider a long position.