NOW Inc (DNOW): Are Hedge Funds Right About This Stock?

Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

In this article, we are going to take a look at the latest hedge fund activity surrounding NOW Inc (NYSE:DNOW). Overall, during the third quarter, the stock registered a decrease in hedge fund interest. There were 16 funds in our database with holdings in DNOW at the end of September, compared to 18 funds at the end of June. 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 The New York Times Company (NYSE:NYT), Parkway Properties Inc (NYSE:PKY), and Nektar Therapeutics (NASDAQ:NKTR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What have hedge funds been doing with NOW Inc (NYSE:DNOW)?

At the end of the third quarter, 16 of the hedge funds tracked by Insider Monkey were bullish on NOW Inc (NYSE:DNOW), which represents a decrease of 11% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in DNOW heading into this year. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Arlington Value Capital, led by Allan Mecham and Ben Raybould, holds the biggest position in NOW Inc (NYSE:DNOW). Arlington Value Capital has a $75.8 million position in the stock, comprising 8.8% of its 13F portfolio. Coming in second is Warren Buffett’s Berkshire Hathaway, with a $39.1 million position. Some other members of the smart money that are bullish encompass Jim Simons’ Renaissance Technologies, Cliff Asness’ AQR Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that Arlington Value Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dumped their positions entirely. It’s worth mentioning that First Eagle Investment Management dumped the biggest investment of all the hedgies monitored by Insider Monkey, comprising about $152.5 million in stock. David Costen Haley’s fund, HBK Investments, also said goodbye to its stock, about $1.6 million worth.

Let’s now take a look at hedge fund activity in other stocks similar to NOW Inc (NYSE:DNOW). These stocks are The New York Times Company (NYSE:NYT), Parkway Properties Inc (NYSE:PKY), Nektar Therapeutics (NASDAQ:NKTR), and Commercial Metals Company (NYSE:CMC). This group of stocks’ market valuations are closest to DNOW’s market valuation.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $227 million in DNOW’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table, while Parkway Properties Inc (NYSE:PKY) is the least popular one with only 11 bullish hedge fund positions. NOW Inc (NYSE:DNOW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard The New York Times Company (NYSE:NYT) might be a better candidate to consider taking a long position in.

Disclosure: None