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Did Hedge Funds Make The Right Call On Navistar International Corp (NAV) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Navistar International Corp (NYSE:NAV) and determine whether hedge funds had an edge regarding this stock.

Navistar International Corp (NYSE:NAV) has seen an increase in enthusiasm from smart money in recent months. Our calculations also showed that NAV 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

TUDOR INVESTMENT CORP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s take a look at the fresh hedge fund action regarding Navistar International Corp (NYSE:NAV).

How are hedge funds trading Navistar International Corp (NYSE:NAV)?

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in NAV a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is NAV A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carl Icahn’s Icahn Capital LP has the biggest position in Navistar International Corp (NYSE:NAV), worth close to $275.9 million, comprising 1.5% of its total 13F portfolio. The second largest stake is held by MHR Fund Management, managed by Mark Rachesky, which holds a $267.6 million position; 40.6% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism comprise Mario Gabelli’s GAMCO Investors, Carl Tiedemann and Michael Tiedemann’s TIG Advisors and  Renaissance Technologies. In terms of the portfolio weights assigned to each position MHR Fund Management allocated the biggest weight to Navistar International Corp (NYSE:NAV), around 40.63% of its 13F portfolio. Havens Advisors is also relatively very bullish on the stock, setting aside 2.01 percent of its 13F equity portfolio to NAV.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. TIG Advisors, managed by Carl Tiedemann and Michael Tiedemann, initiated the biggest position in Navistar International Corp (NYSE:NAV). TIG Advisors had $47.5 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also made a $13.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, John Paulson’s Paulson & Co, and Steven Clark’s Omni Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Navistar International Corp (NYSE:NAV) but similarly valued. These stocks are Belden Inc. (NYSE:BDC), Evertec Inc (NYSE:EVTC), Capitol Federal Financial, Inc. (NASDAQ:CFFN), and CONMED Corporation (NASDAQ:CNMD). This group of stocks’ market caps are similar to NAV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BDC 14 53342 2
EVTC 19 197628 0
CFFN 11 108700 -5
CNMD 29 207132 -2
Average 18.25 141701 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $760 million in NAV’s case. CONMED Corporation (NASDAQ:CNMD) is the most popular stock in this table. On the other hand Capitol Federal Financial, Inc. (NASDAQ:CFFN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Navistar International Corp (NYSE:NAV) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on NAV as the stock returned 71% in Q2 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.