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Did Hedge Funds Make The Right Call On NCR Corporation (NCR) ?

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 NCR Corporation (NYSE:NCR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hedge fund interest in NCR Corporation (NYSE:NCR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NCR to other stocks including BlackBerry Limited (NYSE:BB), Tempur Sealy International Inc. (NYSE:TPX), and J&J Snack Foods Corp. (NASDAQ:JJSF) to get a better sense of its popularity.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the fresh hedge fund action regarding NCR Corporation (NYSE:NCR).

Hedge fund activity in NCR Corporation (NYSE:NCR)

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NCR over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Nitorum Capital held the most valuable stake in NCR Corporation (NYSE:NCR), which was worth $30.7 million at the end of the third quarter. On the second spot was D E Shaw which amassed $25.3 million worth of shares. Eminence Capital, Light Street Capital, and Engaged Capital 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 Clearline Capital allocated the biggest weight to NCR Corporation (NYSE:NCR), around 2.63% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, dishing out 2.37 percent of its 13F equity portfolio to NCR.

Seeing as NCR Corporation (NYSE:NCR) has witnessed falling interest from hedge fund managers, it’s safe to say that there exists a select few funds that elected to cut their entire stakes last quarter. At the top of the heap, Andrew Rechtschaffen’s AREX Capital Management dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $9.4 million in stock, and James Parsons’s Junto Capital Management was right behind this move, as the fund said goodbye to about $7.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to NCR Corporation (NYSE:NCR). We will take a look at BlackBerry Limited (NYSE:BB), Tempur Sealy International Inc. (NYSE:TPX), J&J Snack Foods Corp. (NASDAQ:JJSF), and Valmont Industries, Inc. (NYSE:VMI). This group of stocks’ market values are closest to NCR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BB 22 280349 -5
TPX 38 501858 -4
JJSF 17 83077 4
VMI 24 218687 0
Average 25.25 270993 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $156 million in NCR’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 17 bullish hedge fund positions. NCR Corporation (NYSE:NCR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately NCR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NCR were disappointed as the stock returned -2.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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