Are Dark Clouds Ahead for Nature’s Sunshine Prod. (NATR)?

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. The S&P 500 Index returned about 5.2% during the last 12 months ending October 31, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among the hedge funds in our database at the end of September 2014 had an average return of 9.5% during the same period. 63% of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it works more often than not. In this article, we will take a look at what hedge funds think about Nature’s Sunshine Prod. (NASDAQ:NATR).

Nature’s Sunshine declined by 13% during the third quarter, but for the most part that didn’t scare off the investors of the stock in our database, who maintained their positions collectively and held 35.50% of the health food company’s shares as of September 30. The number of shareholders did decline by 1 to 6 however. At the end of this article we will also compare NATR to other stocks including Foamix Pharmaceuticals Ltd (NASDAQ:FOMX), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), and PICO Holdings Inc (NASDAQ:PICO) to get a better sense of its popularity.

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At the moment there are a large number of tools investors employ to size up stocks. A duo of the less utilized tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top hedge fund managers can beat the market by a significant amount (see the details here).

Now, we’re going to take a look at the key action surrounding Nature’s Sunshine Prod. (NASDAQ:NATR).

What have hedge funds been doing with Nature’s Sunshine Prod. (NASDAQ:NATR)?

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 14% decline from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Willem Mesdag’s Red Mountain Capital has the number one position in Nature’s Sunshine Prod. (NASDAQ:NATR), worth close to $28.8 million, amounting to 7.6% of its total 13F portfolio. The second-largest stake is held by Wynnefield Capital, managed by Nelson Obus, which holds a $24.5 million position; the fund has 9.8% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Phil Frohlich’s Prescott Group Capital Management, Renaissance Technologies, and Warren Lichtenstein’s Steel Partners.

Judging by the fact that Nature’s Sunshine Prod. (NASDAQ:NATR) has faced falling interest from the smart money, it’s safe to say that there lies a certain “tier” of fund managers that slashed their positions entirely heading into Q4. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the largest position of the “upper crust” of funds followed by Insider Monkey, worth about $0.2 million in stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Nature’s Sunshine Prod. (NASDAQ:NATR) but similarly valued. We will take a look at Foamix Pharmaceuticals Ltd (NASDAQ:FOMX), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), PICO Holdings Inc (NASDAQ:PICO), and Ducommun Incorporated (NYSE:DCO). This group of stocks’ market values are similar to NATR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOMX 18 49713 -2
EGLE 5 160970 1
PICO 11 34940 1
DCO 12 14462 3

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $80 million in NATR’s case. Foamix Pharmaceuticals Ltd (NASDAQ:FOMX) is the most popular stock in this table. On the other hand Eagle Bulk Shipping Inc. (NASDAQ:EGLE) is the least popular one with only 5 bullish hedge fund positions. Nature’s Sunshine Prod. (NASDAQ:NATR) is not the least popular stock in this group but hedge fund interest is still below average, though the investors that do like it, like it a lot. This is a slightly negative signal nonetheless, and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FOMX might be a better candidate to consider for a long position.