How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Nature’s Sunshine Prod. (NASDAQ:NATR).
Hedge fund interest in Nature’s Sunshine Prod. (NASDAQ:NATR) 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 Plymouth Industrial REIT, Inc. (NYSE:PLYM), Bassett Furniture Industries Inc. (NASDAQ:BSET), and Adaptimmune Therapeutics plc (NASDAQ:ADAP) to gather more data points. Our calculations also showed that NATR 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Nelson Obus of Wynnefield 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 analyze the key hedge fund action regarding Nature’s Sunshine Prod. (NASDAQ:NATR).
How are hedge funds trading Nature’s Sunshine Prod. (NASDAQ:NATR)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NATR over the last 17 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Willem Mesdag’s Red Mountain Capital has the most valuable position in Nature’s Sunshine Prod. (NASDAQ:NATR), worth close to $20.9 million, accounting for 18.4% of its total 13F portfolio. The second largest stake is held by Wynnefield Capital, managed by Nelson Obus, which holds a $19 million position; the fund has 10.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions encompass Phil Frohlich’s Prescott Group Capital Management, Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management. In terms of the portfolio weights assigned to each position Red Mountain Capital allocated the biggest weight to Nature’s Sunshine Prod. (NASDAQ:NATR), around 18.41% of its 13F portfolio. Wynnefield Capital is also relatively very bullish on the stock, dishing out 10.1 percent of its 13F equity portfolio to NATR.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Nature’s Sunshine Prod. (NASDAQ:NATR) but similarly valued. We will take a look at Plymouth Industrial REIT, Inc. (NYSE:PLYM), Bassett Furniture Industries Inc. (NASDAQ:BSET), Adaptimmune Therapeutics plc (NASDAQ:ADAP), and Craft Brew Alliance Inc (NASDAQ:BREW). This group of stocks’ market valuations match NATR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLYM | 7 | 16015 | 5 |
| BSET | 9 | 28847 | 0 |
| ADAP | 10 | 51857 | 0 |
| BREW | 14 | 11952 | 2 |
| Average | 10 | 27168 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $66 million in NATR’s case. Craft Brew Alliance Inc (NASDAQ:BREW) is the most popular stock in this table. On the other hand Plymouth Industrial REIT, Inc. (NYSE:PLYM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Nature’s Sunshine Prod. (NASDAQ:NATR) is even less popular than PLYM. Hedge funds clearly dropped the ball on NATR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NATR as the stock returned 21.2% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
