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Did Hedge Funds Make The Right Call On NovaGold Resources Inc. (NG) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of NovaGold Resources Inc. (NYSE:NG) based on that data and determine whether they were really smart about the stock.

NovaGold Resources Inc. (NYSE:NG) investors should pay attention to an increase in support from the world’s most elite money managers of late. NG was in 19 hedge funds’ portfolios at the end of March. There were 16 hedge funds in our database with NG positions at the end of the previous quarter. Our calculations also showed that NG 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.

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.

PAULSON & CO

John Paulson of Paulson & Co

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. Now we’re going to view the key hedge fund action encompassing NovaGold Resources Inc. (NYSE:NG).

What does smart money think about NovaGold Resources Inc. (NYSE:NG)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in NG a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

More specifically, Paulson & Co was the largest shareholder of NovaGold Resources Inc. (NYSE:NG), with a stake worth $186.2 million reported as of the end of September. Trailing Paulson & Co was Empyrean Capital Partners, which amassed a stake valued at $33.5 million. JNE Partners, Kopernik Global Investors, and RIT Capital Partners 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 JNE Partners allocated the biggest weight to NovaGold Resources Inc. (NYSE:NG), around 23.25% of its 13F portfolio. RIT Capital Partners is also relatively very bullish on the stock, designating 7.33 percent of its 13F equity portfolio to NG.

As industrywide interest jumped, key money managers have been driving this bullishness. RIT Capital Partners, managed by Jacob Rothschild, assembled the largest position in NovaGold Resources Inc. (NYSE:NG). RIT Capital Partners had $9.9 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $1.3 million investment in the stock during the quarter. The other funds with brand new NG positions are Charles Paquelet’s Skylands Capital, Mika Toikka’s AlphaCrest Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s go over hedge fund activity in other stocks similar to NovaGold Resources Inc. (NYSE:NG). These stocks are Corelogic Inc (NYSE:CLGX), Brady Corp (NYSE:BRC), Nordstrom, Inc. (NYSE:JWN), and F.N.B. Corp (NYSE:FNB). This group of stocks’ market values are similar to NG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLGX 31 253322 3
BRC 10 140433 -5
JWN 25 72883 -5
FNB 24 63920 1
Average 22.5 132640 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $297 million in NG’s case. Corelogic Inc (NYSE:CLGX) is the most popular stock in this table. On the other hand Brady Corp (NYSE:BRC) is the least popular one with only 10 bullish hedge fund positions. NovaGold Resources Inc. (NYSE:NG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately NG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NG investors were disappointed as the stock returned 25.9% since Q1 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 most of these stocks already outperformed the market in 2020.

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