Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Noble Midstream Partners LP (NYSE:NBLX).
Hedge fund interest in Noble Midstream Partners LP (NYSE:NBLX) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Office Depot Inc (NYSE:ODP), TiVo Corporation (NASDAQ:TIVO), and CareDx, Inc. (NASDAQ:CDNA) to gather more data points. Our calculations also showed that NBLX 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s check out the latest hedge fund action regarding Noble Midstream Partners LP (NYSE:NBLX).
Hedge fund activity in Noble Midstream Partners LP (NYSE:NBLX)
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NBLX over the last 17 quarters. So, let’s review 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, Paul Marshall and Ian Wace’s Marshall Wace has the largest position in Noble Midstream Partners LP (NYSE:NBLX), worth close to $1 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by BP Capital, with a $0.9 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Matthew Hulsizer’s PEAK6 Capital Management, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position BP Capital allocated the biggest weight to Noble Midstream Partners LP (NYSE:NBLX), around 0.72% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to NBLX.
Since Noble Midstream Partners LP (NYSE:NBLX) has witnessed falling interest from hedge fund managers, it’s easy to see that there were a few fund managers that slashed their positions entirely in the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 750 funds tracked by Insider Monkey, worth about $0.9 million in stock, and Emanuel J. Friedman’s EJF Capital was right behind this move, as the fund sold off about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Noble Midstream Partners LP (NYSE:NBLX). We will take a look at Office Depot Inc (NASDAQ:ODP), TiVo Corporation (NASDAQ:TIVO), CareDx, Inc. (NASDAQ:CDNA), and Turquoise Hill Resources Ltd (NYSE:TRQ). This group of stocks’ market valuations match NBLX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ODP | 16 | 61845 | -4 |
| TIVO | 21 | 95965 | 2 |
| CDNA | 22 | 104501 | -2 |
| TRQ | 19 | 207845 | -1 |
| Average | 19.5 | 117539 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $3 million in NBLX’s case. CareDx, Inc. (NASDAQ:CDNA) is the most popular stock in this table. On the other hand Office Depot Inc (NASDAQ:ODP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Noble Midstream Partners LP (NYSE:NBLX) is even less popular than ODP. Hedge funds dodged a bullet by taking a bearish stance towards NBLX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NBLX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NBLX investors were disappointed as the stock returned -11.1% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
