Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of NOW Inc (NYSE:DNOW).
Is NOW Inc (NYSE:DNOW) going to take off soon? Prominent investors were in a pessimistic mood. The number of bullish hedge fund bets decreased by 4 lately. NOW Inc (NYSE:DNOW) was in 18 hedge funds’ portfolios at the end of March. The all time high for this statistic is 22. Our calculations also showed that DNOW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Michael Burry of Scion Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now we’re going to review the fresh hedge fund action regarding NOW Inc (NYSE:DNOW).
Do Hedge Funds Think DNOW Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the fourth quarter of 2020. By comparison, 19 hedge funds held shares or bullish call options in DNOW 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.
Among these funds, Renaissance Technologies held the most valuable stake in NOW Inc (NYSE:DNOW), which was worth $58.5 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $22.6 million worth of shares. Two Sigma Advisors, Scion Asset Management, and AQR 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 Scion Asset Management allocated the biggest weight to NOW Inc (NYSE:DNOW), around 0.52% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to DNOW.
Judging by the fact that NOW Inc (NYSE:DNOW) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedgies who sold off their positions entirely by the end of the first quarter. Interestingly, Till Bechtolsheimer’s Arosa Capital Management dumped the largest stake of the 750 funds watched by Insider Monkey, valued at an estimated $2.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $0.9 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NOW Inc (NYSE:DNOW) but similarly valued. These stocks are Community Healthcare Trust Inc (NYSE:CHCT), Brooge Energy Limited (NASDAQ:BROG), Colony Credit Real Estate, Inc. (NYSE:CLNC), Diebold Nixdorf Incorporated (NYSE:DBD), Prothena Corporation plc (NASDAQ:PRTA), Trillium Therapeutics Inc. (NASDAQ:TRIL), and Omeros Corporation (NASDAQ:OMER). All of these stocks’ market caps match DNOW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHCT | 14 | 81537 | 2 |
| BROG | 6 | 40875 | 0 |
| CLNC | 8 | 58730 | -2 |
| DBD | 19 | 183518 | 1 |
| PRTA | 17 | 450354 | -3 |
| TRIL | 27 | 343747 | -9 |
| OMER | 12 | 129925 | 2 |
| Average | 14.7 | 184098 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $118 million in DNOW’s case. Trillium Therapeutics Inc. (NASDAQ:TRIL) is the most popular stock in this table. On the other hand Brooge Energy Limited (NASDAQ:BROG) is the least popular one with only 6 bullish hedge fund positions. NOW Inc (NYSE:DNOW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DNOW is 54.1. 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 positive signal but 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately DNOW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DNOW were disappointed as the stock returned -6.2% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
