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Did Hedge Funds Drop The Ball On Newpark Resources Inc (NR) ?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Newpark Resources Inc (NYSE:NR).

Is Newpark Resources Inc (NYSE:NR) going to take off soon? Hedge funds are taking a pessimistic view. The number of long hedge fund positions were cut by 4 recently. Our calculations also showed that NR isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are tons of formulas stock traders can use to analyze stocks. A couple of the most underrated formulas are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the best investment managers can beat the market by a very impressive margin (see the details here).

D. E. Shaw

We’re going to view the latest hedge fund action regarding Newpark Resources Inc (NYSE:NR).

What does the smart money think about Newpark Resources Inc (NYSE:NR)?

Heading into the first quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards NR over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NR_may2019

More specifically, Royce & Associates was the largest shareholder of Newpark Resources Inc (NYSE:NR), with a stake worth $20.7 million reported as of the end of December. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $4.9 million. D E Shaw, Arosa Capital Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Since Newpark Resources Inc (NYSE:NR) has experienced a decline in interest from hedge fund managers, it’s easy to see that there is a sect of funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group cut the largest position of all the hedgies followed by Insider Monkey, valued at about $2.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $2.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Newpark Resources Inc (NYSE:NR) but similarly valued. We will take a look at Intra-Cellular Therapies Inc (NASDAQ:ITCI), istar Inc (NYSE:STAR), Nexgen Energy Ltd. (NYSE:NXE), and Accelerate Diagnostics Inc (NASDAQ:AXDX). This group of stocks’ market caps are closest to NR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITCI 15 57803 -1
STAR 8 68468 0
NXE 7 8432 1
AXDX 5 31482 -1
Average 8.75 41546 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $32 million in NR’s case. Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 5 bullish hedge fund positions. Newpark Resources Inc (NYSE:NR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on NR as the stock returned 30.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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