Was The Smart Money Right About Navistar International Corp (NAV)?

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 Peltz’s recent General Electric 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 Navistar International Corp (NYSE:NAV).

Navistar International Corp (NYSE:NAV) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. Navistar International Corp (NYSE:NAV) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. There were 36 hedge funds in our database with NAV positions at the end of the first quarter. Our calculations also showed that NAV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Rachesky of MHR Fund Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s take a gander at the recent hedge fund action surrounding Navistar International Corp (NYSE:NAV).

How are hedge funds trading Navistar International Corp (NYSE:NAV)?

At Q2’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NAV over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Icahn Capital LP was the largest shareholder of Navistar International Corp (NYSE:NAV), with a stake worth $471.8 million reported as of the end of June. Trailing Icahn Capital LP was MHR Fund Management, which amassed a stake valued at $457.5 million. GAMCO Investors, TIG Advisors, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MHR Fund Management allocated the biggest weight to Navistar International Corp (NYSE:NAV), around 49.3% of its 13F portfolio. TIG Advisors is also relatively very bullish on the stock, earmarking 6.84 percent of its 13F equity portfolio to NAV.

Due to the fact that Navistar International Corp (NYSE:NAV) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers that decided to sell off their positions entirely heading into Q3. It’s worth mentioning that Robert Emil Zoellner’s Alpine Associates said goodbye to the largest position of all the hedgies tracked by Insider Monkey, worth an estimated $13.4 million in stock. John Paulson’s fund, Paulson & Co, also dropped its stock, about $3.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Navistar International Corp (NYSE:NAV) but similarly valued. These stocks are STAAR Surgical Company (NASDAQ:STAA), Goosehead Insurance, Inc. (NASDAQ:GSHD), FirstCash, Inc. (NASDAQ:FCFS), Varonis Systems Inc (NASDAQ:VRNS), Insmed Incorporated (NASDAQ:INSM), MGIC Investment Corporation (NYSE:MTG), and NorthWestern Corporation (NASDAQ:NWE). All of these stocks’ market caps resemble NAV’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $394 million. That figure was $1246 million in NAV’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 15 bullish hedge fund positions. Navistar International Corp (NYSE:NAV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NAV is 65.5. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on NAV as the stock returned 52.9% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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