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Did Hedge Funds Make The Right Call On Nabors Industries Ltd. (NBR)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Nabors Industries Ltd. (NYSE:NBR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Nabors Industries Ltd. (NYSE:NBR) a buy right now? Investors who are in the know were becoming less confident. The number of long hedge fund positions went down by 1 recently. Our calculations also showed that NBR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most traders, hedge funds are seen as slow, old financial vehicles of the past. While there are greater than 8000 funds with their doors open today, Our experts choose to focus on the elite of this group, around 850 funds. It is estimated that this group of investors command the lion’s share of all hedge funds’ total capital, and by shadowing their best stock picks, Insider Monkey has found various investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Michael Hintze CQS Capital

Michael Hintze of CQS Cayman LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to check out the latest hedge fund action regarding Nabors Industries Ltd. (NYSE:NBR).

What have hedge funds been doing with Nabors Industries Ltd. (NYSE:NBR)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NBR over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Nabors Industries Ltd. (NYSE:NBR), which was worth $6.7 million at the end of the third quarter. On the second spot was Omega Advisors which amassed $5.7 million worth of shares. LMR Partners, Miller Value Partners, and Ellington 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 Elm Ridge Capital allocated the biggest weight to Nabors Industries Ltd. (NYSE:NBR), around 1.44% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, dishing out 0.74 percent of its 13F equity portfolio to NBR.

Because Nabors Industries Ltd. (NYSE:NBR) has faced a decline in interest from hedge fund managers, we can see that there exists a select few hedge funds who sold off their positions entirely heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $6 million in stock. D. E. Shaw’s fund, D E Shaw, also sold off its stock, about $3.2 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Nabors Industries Ltd. (NYSE:NBR) but similarly valued. These stocks are Velocity Financial, Inc. (NYSE:VEL), Professional Holding Corp. (NASDAQ:PFHD), C&F Financial Corp (NASDAQ:CFFI), and Grupo Supervielle S.A. (NYSE:SUPV). This group of stocks’ market caps resemble NBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VEL 6 22821 6
PFHD 5 17973 5
CFFI 2 5789 0
SUPV 4 1290 -3
Average 4.25 11968 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $18 million in NBR’s case. Velocity Financial, Inc. (NYSE:VEL) is the most popular stock in this table. On the other hand C&F Financial Corp (NASDAQ:CFFI) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Nabors Industries Ltd. (NYSE:NBR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on NBR as the stock returned 124.8% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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