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Hedge Funds Are Nibbling On Northrop Grumman Corporation (NOC)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Northrop Grumman Corporation (NYSE:NOC).

Northrop Grumman Corporation (NYSE:NOC) has experienced an increase in enthusiasm from smart money in recent months. Our calculations also showed that NOC 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the key hedge fund action encompassing Northrop Grumman Corporation (NYSE:NOC).

What have hedge funds been doing with Northrop Grumman Corporation (NYSE:NOC)?

At Q1’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in NOC a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is NOC A Good Stock To Buy?

The largest stake in Northrop Grumman Corporation (NYSE:NOC) was held by Soroban Capital Partners, which reported holding $460.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $184.2 million position. Other investors bullish on the company included Alkeon Capital Management, Citadel Investment Group, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to Northrop Grumman Corporation (NYSE:NOC), around 8.44% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 5.72 percent of its 13F equity portfolio to NOC.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Soroban Capital Partners, managed by Eric W. Mandelblatt and Gaurav Kapadia, assembled the most valuable position in Northrop Grumman Corporation (NYSE:NOC). Soroban Capital Partners had $460.6 million invested in the company at the end of the quarter. Ken Heebner’s Capital Growth Management also initiated a $13.6 million position during the quarter. The following funds were also among the new NOC investors: Louis Bacon’s Moore Global Investments, Zach Schreiber’s Point State Capital, and Robert Vincent McHugh’s Jade Capital Advisors.

Let’s go over hedge fund activity in other stocks similar to Northrop Grumman Corporation (NYSE:NOC). These stocks are VMware, Inc. (NYSE:VMW), Chubb Limited (NYSE:CB), The Bank of Nova Scotia (NYSE:BNS), and Uber Technologies, Inc. (NYSE:UBER). This group of stocks’ market caps are closest to NOC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VMW 27 420625 -6
CB 33 691382 9
BNS 12 240173 -4
UBER 97 5084706 3
Average 42.25 1609222 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $1609 million. That figure was $984 million in NOC’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 12 bullish hedge fund positions. Northrop Grumman Corporation (NYSE:NOC) 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 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately NOC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NOC were disappointed as the stock returned 7.7% 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.