Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Northrop Grumman Corporation (NYSE:NOC).
Northrop Grumman Corporation (NYSE:NOC) was in 37 hedge funds’ portfolios at the end of September. NOC has seen an increase in support from the world’s most elite money managers in recent months. There were 32 hedge funds in our database with NOC holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as T MOBILE US INC (NYSE:TMUS), Ecolab Inc. (NYSE:ECL), and Ericsson (ADR) (NASDAQ:ERIC) to gather more data points.
Today there are tons of tools market participants use to assess their stock investments. Two of the less utilized tools are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outperform the broader indices by a significant margin (see the details here).
Keeping this in mind, we’re going to take a look at the recent action encompassing Northrop Grumman Corporation (NYSE:NOC).
How have hedgies been trading Northrop Grumman Corporation (NYSE:NOC)?
Heading into Q4, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cliff Asness’ AQR Capital Management has the biggest position in Northrop Grumman Corporation (NYSE:NOC), worth close to $421.7 million, comprising 0.8% of its total 13F portfolio. Coming in second is Zach Schreiber’s Point State Capital, with a $114.8 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Ken Griffin’s Citadel Investment Group, Paul Marshall and Ian Wace’s Marshall Wace LLP and David Harding’s Winton Capital Management.