Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 30 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 6.7% through November 15th whereas the S&P 500 Index ETF gained only 2.6% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at NCR Corporation (NYSE:NCR) from the perspective of those elite funds.
Is NCR Corporation (NYSE:NCR) the right pick for your portfolio? The best stock pickers are getting more bullish. The number of bullish hedge fund positions inched up by 1 recently. Our calculations also showed that ncr isn’t among the 30 most popular stocks among hedge funds. NCR was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 16 hedge funds in our database with NCR positions at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let’s take a look at the key hedge fund action regarding NCR Corporation (NYSE:NCR).
How have hedgies been trading NCR Corporation (NYSE:NCR)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NCR over the last 13 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Engaged Capital, managed by Glenn W. Welling, holds the number one position in NCR Corporation (NYSE:NCR). Engaged Capital has a $30.7 million position in the stock, comprising 4.3% of its 13F portfolio. Sitting at the No. 2 spot is D. E. Shaw of D E Shaw, with a $21.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of Noam Gottesman’s GLG Partners, Chuck Royce’s Royce & Associates and Sander Gerber’s Hudson Bay Capital Management.
As one would reasonably expect, specific money managers were breaking ground themselves. Royce & Associates, managed by Chuck Royce, established the biggest position in NCR Corporation (NYSE:NCR). Royce & Associates had $11 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $9.7 million position during the quarter. The other funds with brand new NCR positions are Peter Seuss’s Prana Capital Management, Sander Gerber’s Hudson Bay Capital Management, and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks similar to NCR Corporation (NYSE:NCR). These stocks are Trinseo S.A. (NYSE:TSE), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), McDermott International, Inc. (NYSE:MDR), and Nuveen AMT-Free Quality Municipal Income Fund (NYSE:NEA). This group of stocks’ market valuations are closest to NCR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSE | 18 | 208871 | 1 |
| CSOD | 28 | 784531 | 7 |
| MDR | 24 | 322643 | 2 |
| NEA | 3 | 7428 | -1 |
| Average | 18.25 | 330868 | 2.25 |
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 $331 million. That figure was $123 million in NCR’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Nuveen AMT-Free Quality Municipal Income Fund (NYSE:NEA) is the least popular one with only 3 bullish hedge fund positions. NCR Corporation (NYSE:NCR) 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. In this regard CSOD might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
