Hedge Funds Are Cautiously Bullish On National Oilwell Varco, Inc. (NOV)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought National Oilwell Varco, Inc. (NYSE:NOV) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

National Oilwell Varco, Inc. (NYSE:NOV) shareholders have witnessed an increase in support from the world’s most elite money managers lately. National Oilwell Varco, Inc. (NYSE:NOV) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. There were 29 hedge funds in our database with NOV positions at the end of the first quarter. Our calculations also showed that NOV isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to view the new hedge fund action encompassing National Oilwell Varco, Inc. (NYSE:NOV).

Hedge fund activity in National Oilwell Varco, Inc. (NYSE:NOV)

At second quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NOV over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the number one position in National Oilwell Varco, Inc. (NYSE:NOV), worth close to $386.8 million, corresponding to 2.5% of its total 13F portfolio. Sitting at the No. 2 spot is Oldfield Partners, managed by Richard Oldfield, which holds a $68.8 million position; the fund has 8% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Renaissance Technologies, John W. Rogers’s Ariel Investments and Anand Parekh’s Alyeska Investment Group. In terms of the portfolio weights assigned to each position Oldfield Partners allocated the biggest weight to National Oilwell Varco, Inc. (NYSE:NOV), around 8% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, designating 5.07 percent of its 13F equity portfolio to NOV.

As one would reasonably expect, key hedge funds have been driving this bullishness. Slate Path Capital, managed by David Greenspan, assembled the biggest position in National Oilwell Varco, Inc. (NYSE:NOV). Slate Path Capital had $20.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $7.3 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management, Greg Poole’s Echo Street Capital Management, and Douglas Dethy’s DC Capital Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as National Oilwell Varco, Inc. (NYSE:NOV) but similarly valued. We will take a look at Everbridge, Inc. (NASDAQ:EVBG), The Mosaic Company (NYSE:MOS), Kemper Corporation (NYSE:KMPR), Owl Rock Capital Corporation (NYSE:ORCC), New York Community Bancorp, Inc. (NYSE:NYCB), Flowers Foods, Inc. (NYSE:FLO), and Nutanix, Inc. (NASDAQ:NTNX). This group of stocks’ market values resemble NOV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EVBG 43 1161901 12
MOS 32 450160 3
KMPR 16 37427 3
ORCC 15 136062 4
NYCB 28 221363 6
FLO 24 269421 -3
NTNX 20 584504 -9
Average 25.4 408691 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $622 million in NOV’s case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Owl Rock Capital Corporation (NYSE:ORCC) is the least popular one with only 15 bullish hedge fund positions. National Oilwell Varco, Inc. (NYSE:NOV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOV is 61.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately NOV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NOV were disappointed as the stock returned -7.8% 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.