Was The Smart Money Right About Northrop Grumman Corporation (NOC)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Northrop Grumman Corporation (NYSE:NOC) in this article.

Northrop Grumman Corporation (NYSE:NOC) was in 47 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. NOC has seen an increase in enthusiasm from smart money recently. There were 45 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 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Phillip Gross of Adage 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. With all of this in mind let’s check out the new hedge fund action surrounding Northrop Grumman Corporation (NYSE:NOC).

Hedge fund activity in Northrop Grumman Corporation (NYSE:NOC)

Heading into the third quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in NOC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners has the number one position in Northrop Grumman Corporation (NYSE:NOC), worth close to $291.4 million, corresponding to 3.7% of its total 13F portfolio. On Soroban Capital Partners’s heels is Panayotis Takis Sparaggis of Alkeon Capital Management, with a $112.8 million position; 0.3% of its 13F portfolio is allocated to the company. Other peers that are bullish comprise Israel Englander’s Millennium Management, and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to Northrop Grumman Corporation (NYSE:NOC), around 8.37% of its 13F portfolio. Soroban Capital Partners is also relatively very bullish on the stock, dishing out 3.73 percent of its 13F equity portfolio to NOC.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the biggest position in Northrop Grumman Corporation (NYSE:NOC). Adage Capital Management had $23.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $9.1 million position during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Chen Tianqiao’s Shanda Asset Management, and Jinghua Yan’s TwinBeech Capital.

Let’s go over 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 Global Payments Inc (NYSE:GPN), Sea Limited (NYSE:SE), Truist Financial Corporation (NYSE:TFC), CNOOC Limited (NYSE:CEO), Boston Scientific Corporation (NYSE:BSX), Intercontinental Exchange Inc (NYSE:ICE), and The Bank of Nova Scotia (NYSE:BNS). All of these stocks’ market caps are closest to NOC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.6 hedge funds with bullish positions and the average amount invested in these stocks was $2206 million. That figure was $990 million in NOC’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 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 61.6. 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 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 surpassed the market by 21 percentage points. Unfortunately NOC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NOC investors were disappointed as the stock returned 0.7% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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