Does Newpark Resources Inc (NYSE:NR) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Newpark Resources Inc (NYSE:NR) a buy right now? Prominent investors are getting less optimistic. The number of long hedge fund positions dropped by 7 lately. Our calculations also showed that NR isn’t among the 30 most popular stocks among hedge funds (see the video below). NR was in 8 hedge funds’ portfolios at the end of June. There were 15 hedge funds in our database with NR positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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 recent hedge fund action surrounding Newpark Resources Inc (NYSE:NR).
How are hedge funds trading Newpark Resources Inc (NYSE:NR)?
At Q2’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in NR a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Newpark Resources Inc (NYSE:NR), with a stake worth $21.1 million reported as of the end of March. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $3.7 million. PDT Partners, Laurion Capital Management, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Newpark Resources Inc (NYSE:NR) has experienced falling interest from the smart money, logic holds that there were a few fund managers who sold off their entire stakes by the end of the second quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the largest stake of the 750 funds followed by Insider Monkey, worth an estimated $4.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $2.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 7 funds by the end of the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Newpark Resources Inc (NYSE:NR) but similarly valued. These stocks are Just Energy Group, Inc. (NYSE:JE), Argan, Inc. (NYSE:AGX), Resolute Forest Products Inc (NYSE:RFP), and Heska Corp (NASDAQ:HSKA). This group of stocks’ market valuations resemble NR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JE | 13 | 45371 | 3 |
| AGX | 10 | 90573 | -2 |
| RFP | 17 | 286497 | -6 |
| HSKA | 13 | 35709 | 2 |
| Average | 13.25 | 114538 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $26 million in NR’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand Argan, Inc. (NYSE:AGX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Newpark Resources Inc (NYSE:NR) is even less popular than AGX. 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. A small number of hedge funds were also right about betting on NR, though not to the same extent, as the stock returned 2.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
