Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Northrop Grumman Corporation (NYSE:NOC).
Northrop Grumman Corporation (NYSE:NOC) was in 42 hedge funds’ portfolios at the end of June. The all time high for this statistic is 47. NOC has experienced an increase in hedge fund interest lately. There were 40 hedge funds in our database with NOC positions at the end of the first quarter. Our calculations also showed that NOC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Donald Yacktman of Yacktman Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to view the recent hedge fund action regarding Northrop Grumman Corporation (NYSE:NOC).
Do Hedge Funds Think NOC Is A Good Stock To Buy Now?
At second quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NOC over the last 24 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the most valuable position in Northrop Grumman Corporation (NYSE:NOC). D E Shaw has a $195.6 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $181.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Donald Yacktman’s Yacktman Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Northrop Grumman Corporation (NYSE:NOC), around 6.02% of its 13F portfolio. Adam Capital is also relatively very bullish on the stock, dishing out 3.38 percent of its 13F equity portfolio to NOC.
Consequently, key money managers were leading the bulls’ herd. Sciencast Management, managed by Qing Li, assembled the largest position in Northrop Grumman Corporation (NYSE:NOC). Sciencast Management had $4.2 million invested in the company at the end of the quarter. Jinghua Yan’s TwinBeech Capital also made a $3 million investment in the stock during the quarter. The other funds with brand new NOC positions are Karim Abbadi and Edward McBride’s Centiva Capital, Michael Gelband’s ExodusPoint Capital, and Greg Poole’s Echo Street Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Northrop Grumman Corporation (NYSE:NOC) but similarly valued. We will take a look at DoorDash, Inc. (NYSE:DASH), Emerson Electric Co. (NYSE:EMR), The Progressive Corporation (NYSE:PGR), Humana Inc (NYSE:HUM), KE Holdings Inc (NYSE:BEKE), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and NXP Semiconductors NV (NASDAQ:NXPI). All of these stocks’ market caps are similar to NOC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DASH | 45 | 8924479 | 7 |
| EMR | 45 | 854279 | 0 |
| PGR | 44 | 1338423 | -1 |
| HUM | 59 | 3257015 | 6 |
| BEKE | 31 | 2712876 | -2 |
| CRWD | 66 | 7266652 | -11 |
| NXPI | 52 | 1336949 | -1 |
| Average | 48.9 | 3670096 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.9 hedge funds with bullish positions and the average amount invested in these stocks was $3670 million. That figure was $1053 million in NOC’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand KE Holdings Inc (NYSE:BEKE) is the least popular one with only 31 bullish hedge fund positions. Northrop Grumman Corporation (NYSE:NOC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NOC is 49.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately NOC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NOC investors were disappointed as the stock returned 0.7% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Northrop Grumman Corp (NYSE:NOC)
Follow Northrop Grumman Corp (NYSE:NOC)
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Disclosure: None. This article was originally published at Insider Monkey.
