Is NGVT Stock A Buy or Sell?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Ingevity Corporation (NYSE:NGVT).

Is NGVT stock a buy? Ingevity Corporation (NYSE:NGVT) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. Ingevity Corporation (NYSE:NGVT) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 31. Our calculations also showed that NGVT isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind we’re going to view the recent hedge fund action regarding Ingevity Corporation (NYSE:NGVT).

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

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NGVT over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Richard Scott Greeder’s Broad Bay Capital has the number one position in Ingevity Corporation (NYSE:NGVT), worth close to $100.3 million, accounting for 11.3% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $47.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain Len Kipp and Xavier Majic’s Maple Rock Capital, Jeff Ubben’s Inclusive Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Broad Bay Capital allocated the biggest weight to Ingevity Corporation (NYSE:NGVT), around 11.26% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, dishing out 5.33 percent of its 13F equity portfolio to NGVT.

Judging by the fact that Ingevity Corporation (NYSE:NGVT) has faced a decline in interest from hedge fund managers, it’s safe to say that there were a few funds that decided to sell off their full holdings by the end of the fourth quarter. Intriguingly, Mark Lee’s Mountaineer Partners Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, worth about $7.3 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $7.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds by the end of the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Ingevity Corporation (NYSE:NGVT). These stocks are Sensient Technologies Corporation (NYSE:SXT), Insperity Inc (NYSE:NSP), Meritage Homes Corp (NYSE:MTH), Kirby Corporation (NYSE:KEX), Focus Financial Partners Inc. (NASDAQ:FOCS), White Mountains Insurance Group Ltd (NYSE:WTM), and Allegiant Travel Company (NASDAQ:ALGT). This group of stocks’ market valuations are similar to NGVT’s market valuation.

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As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $290 million in NGVT’s case. Meritage Homes Corp (NYSE:MTH) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 9 bullish hedge fund positions. Ingevity Corporation (NYSE:NGVT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NGVT is 59.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately NGVT wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on NGVT were disappointed as the stock returned -3.3% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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