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Do Hedge Funds and Insiders Love Northrop Grumman Corporation (NOC)?

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Is Northrop Grumman Corporation (NYSE:NOC) a buy, sell, or hold? The smart money is getting more optimistic. The number of long hedge fund bets increased by 5 recently.

According to most stock holders, hedge funds are perceived as underperforming, outdated investment tools of yesteryear. While there are over 8000 funds trading at the moment, we hone in on the leaders of this club, close to 450 funds. Most estimates calculate that this group controls most of the smart money’s total asset base, and by watching their top stock picks, we have figured out a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Northrop Grumman Corporation (NYSE:NOC)Just as beneficial, optimistic insider trading activity is another way to break down the investments you’re interested in. Obviously, there are a number of reasons for an upper level exec to downsize shares of his or her company, but just one, very simple reason why they would buy. Several empirical studies have demonstrated the impressive potential of this method if you understand where to look (learn more here).

With all of this in mind, we’re going to take a look at the recent action encompassing Northrop Grumman Corporation (NYSE:NOC).

What have hedge funds been doing with Northrop Grumman Corporation (NYSE:NOC)?

Heading into Q2, a total of 28 of the hedge funds we track were bullish in this stock, a change of 22% from one quarter earlier. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially.

Of the funds we track, First Eagle Investment Management, managed by Jean-Marie Eveillard, holds the biggest position in Northrop Grumman Corporation (NYSE:NOC). First Eagle Investment Management has a $425 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Pzena Investment Management, managed by Richard S. Pzena, which held a $288.8 million position; 2% of its 13F portfolio is allocated to the stock. Other peers that are bullish include Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and David Harding’s Winton Capital Management.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Renaissance Technologies, managed by Jim Simons, initiated the biggest position in Northrop Grumman Corporation (NYSE:NOC). Renaissance Technologies had 41.2 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also made a $35.1 million investment in the stock during the quarter. The other funds with brand new NOC positions are Jonathon Jacobson’s Highfields Capital Management, James Melcher’s Balestra, and Anand Parekh’s Alyeska Investment Group.

How are insiders trading Northrop Grumman Corporation (NYSE:NOC)?

Insider purchases made by high-level executives is most useful when the company in focus has experienced transactions within the past half-year. Over the last six-month time frame, Northrop Grumman Corporation (NYSE:NOC) has experienced zero unique insiders buying, and 9 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Northrop Grumman Corporation (NYSE:NOC). These stocks are Gencorp Inc (NYSE:GY), AerCap Holdings N.V. (NYSE:AER), Textron Inc. (NYSE:TXT), , and Raytheon Company (NYSE:RTN). This group of stocks are the members of the aerospace/defense – major diversified industry and their market caps resemble NOC’s market cap.

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