This Metric Says You Are Smart to Sell News Corp (NWS)

Is News Corp (NASDAQ:NWS) a sell?

To many of your peers, hedge funds are assumed to be bloated, outdated financial vehicles of a forgotten age. Although there are over 8,000 hedge funds in operation today, this site aim at the crème de la crème of this group, about 525 funds. It is widely held that this group oversees most of all hedge funds’ total capital, and by keeping an eye on their highest performing equity investments, we’ve uncovered a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 33 percentage points in 11 months (see all of our picks from August).

Just as necessary, bullish insider trading sentiment is a second way to look at the stock market universe. Just as you’d expect, there are many incentives for a corporate insider to sell shares of his or her company, but only one, very clear reason why they would initiate a purchase. Several academic studies have demonstrated the useful potential of this tactic if “monkeys” know what to do (learn more here).

What’s more, let’s analyze the latest info for News Corp (NASDAQ:NWS).

Hedge fund activity in News Corp (NASDAQ:NWS)

In preparation for the third quarter, a total of 20 of the hedge funds we track held long positions in this stock, a change of -23% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly.

Out of the hedge funds we follow, Elliott Management, managed by Paul Singer, holds the biggest position in News Corp (NASDAQ:NWS). Elliott Management has a $331.2 million position in the stock, comprising 6.4% of its 13F portfolio. Sitting at the No. 2 spot is Michael Hintze of CQS Cayman LP, with a $142.4 million position; 20.7% of its 13F portfolio is allocated to the company. Other hedge funds that are bullish include Panayotis Sparaggis’s Alkeon Capital Management, William Duhamel’s Route One Investment Company and Boykin Curry’s Eagle Capital Management.

Because News Corp (NASDAQ:NWS) has faced bearish sentiment from the top-tier hedge fund industry, we can see that there exists a select few hedgies who were dropping their entire stakes last quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw dumped the biggest stake of all the hedgies we track, comprising about $146.1 million in stock. Seth Klarman’s fund, Baupost Group, also sold off its stock, about $124.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds last quarter.

How are insiders trading News Corp (NASDAQ:NWS)?

Legal insider trading, particularly when it’s bullish, is most useful when the company in focus has experienced transactions within the past half-year. Over the last six-month time period, News Corp (NASDAQ:NWS) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to News Corp (NASDAQ:NWS). These stocks are Live Nation Entertainment, Inc. (NYSE:LYV), Starz (NASDAQ:STRZA), The Madison Square Garden Co (NASDAQ:MSG), The Walt Disney Company (NYSE:DIS), and Time Warner Inc (NYSE:TWX). This group of stocks belong to the entertainment – diversified industry and their market caps match NWS’s market cap.

Using the returns explained by our strategies, regular investors must always keep one eye on hedge fund and insider trading sentiment, and News Corp (NASDAQ:NWS) is an important part of this process.

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