Hedge Funds Are Crazy About Norfolk Southern Corp. (NSC)

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Norfolk Southern Corp. (NYSE:NSC) from the perspective of those elite funds.

Is Norfolk Southern Corp. (NYSE:NSC) going to take off soon? Investors who are in the know are getting more optimistic. The number of long hedge fund positions advanced by 4 recently. NSC was in 36 hedge funds’ portfolios at the end of September. There were 32 hedge funds in our database with NSC holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Intuitive Surgical, Inc. (NASDAQ:ISRG), NVIDIA Corporation (NASDAQ:NVDA), and Spectra Energy Corp. (NYSE:SE) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, we’re going to check out the fresh action surrounding Norfolk Southern Corp. (NYSE:NSC).

How are hedge funds trading Norfolk Southern Corp. (NYSE:NSC)?

Heading into the fourth quarter of 2016, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 13% from the second quarter of 2016. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jonathan Barrett and Paul Segal’s Luminus Management has the biggest position in Norfolk Southern Corp. (NYSE:NSC), worth close to $125.4 million, amounting to 3.2% of its total 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with an $88.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Alexander Mitchell’s Scopus Asset Management, Ken Griffin’s Citadel Investment Group and Zach Schreiber’s Point State Capital.

As one would reasonably expect, some big names have been driving this bullishness. Luminus Management, run by Jonathan Barrett and Paul Segal, established the most outsized position in Norfolk Southern Corp. (NYSE:NSC). The fund had $125.4 million invested in the company at the end of the quarter. Solomon Kumin’s Folger Hill Asset Management also made a $17.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Glenn Russell Dubin’s Highbridge Capital Management, Ken Griffin’s Citadel Investment Group, and Gregg Moskowitz’s Interval Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Norfolk Southern Corp. (NYSE:NSC) but similarly valued. These stocks are Intuitive Surgical, Inc. (NASDAQ:ISRG), NVIDIA Corporation (NASDAQ:NVDA), Spectra Energy Corp. (NYSE:SE), and Southwest Airlines Co. (NYSE:LUV). This group of stocks’ market values resemble NSC’s market value.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1.48 billion. That figure was just $759 million in NSC’s case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand Spectra Energy Corp. (NYSE:SE) is the least popular one with only 25 bullish hedge fund positions. Norfolk Southern Corp. (NYSE:NSC) 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 LUV might be a better candidate to consider a long position.