Keeping this in mind, let’s analyze whether Norfolk Southern Corp. (NYSE:NSC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Norfolk Southern Corp. (NYSE:NSC) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Norfolk Southern Corp. (NYSE:NSC) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistics is 54. Our calculations also showed that NSC 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.
Keith Meister of Corvex Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. 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. Now let’s view the key hedge fund action surrounding Norfolk Southern Corp. (NYSE:NSC).
How are hedge funds trading Norfolk Southern Corp. (NYSE:NSC)?
At second quarter’s end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 54 hedge funds held shares or bullish call options in NSC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Norfolk Southern Corp. (NYSE:NSC), with a stake worth $139.6 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $101.5 million. Fisher Asset Management, Corvex Capital, and Suvretta Capital Management 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 Lodge Hill Capital allocated the biggest weight to Norfolk Southern Corp. (NYSE:NSC), around 7.84% of its 13F portfolio. Corvex Capital is also relatively very bullish on the stock, earmarking 5.34 percent of its 13F equity portfolio to NSC.
Because Norfolk Southern Corp. (NYSE:NSC) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that decided to sell off their full holdings heading into Q3. Interestingly, Andreas Halvorsen’s Viking Global sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $258.1 million in stock. Eric W. Mandelblatt and Gaurav Kapadia’s fund, Soroban Capital Partners, also dropped its stock, about $160.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Norfolk Southern Corp. (NYSE:NSC) but similarly valued. These stocks are Waste Management, Inc. (NYSE:WM), The PNC Financial Services Group, Inc. (NYSE:PNC), Aon plc (NYSE:AON), Atlassian Corporation Plc (NASDAQ:TEAM), Honda Motor Co Ltd (NYSE:HMC), Workday Inc (NASDAQ:WDAY), and Edwards Lifesciences Corporation (NYSE:EW). All of these stocks’ market caps are closest to NSC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WM | 39 | 2844869 | -1 |
| PNC | 52 | 1108094 | 12 |
| AON | 57 | 4755205 | 10 |
| TEAM | 55 | 2872691 | -4 |
| HMC | 10 | 296833 | 2 |
| WDAY | 73 | 3444523 | 15 |
| EW | 45 | 1391002 | -4 |
| Average | 47.3 | 2387602 | 4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.3 hedge funds with bullish positions and the average amount invested in these stocks was $2388 million. That figure was $867 million in NSC’s case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 bullish hedge fund positions. Norfolk Southern Corp. (NYSE:NSC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NSC is 56.5. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. A small number of hedge funds were also right about betting on NSC as the stock returned 23.3% since the end of the second quarter (through 10/23) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
