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Hedge Funds Are Piling Into Northern Oil & Gas, Inc. (NOG)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. Stocks kept going up since then. In this article we look at how hedge funds traded Northern Oil & Gas, Inc. (NYSE:NOG) and determine whether the smart money was really smart about this stock.

Is Northern Oil & Gas, Inc. (NYSE:NOG) a buy right now? Prominent investors were getting more bullish. The number of bullish hedge fund positions moved up by 10 in recent months. Northern Oil & Gas, Inc. (NYSE:NOG) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NOG 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s view the recent hedge fund action surrounding Northern Oil & Gas, Inc. (NYSE:NOG).

How have hedgies been trading Northern Oil & Gas, Inc. (NYSE:NOG)?

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 83% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in NOG a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Northern Oil & Gas, Inc. (NYSE:NOG) was held by Angelo Gordon & Co, which reported holding $25.7 million worth of stock at the end of September. It was followed by SIR Capital Management with a $4.3 million position. Other investors bullish on the company included Graham Capital Management, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Angelo Gordon & Co allocated the biggest weight to Northern Oil & Gas, Inc. (NYSE:NOG), around 3.52% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 1.06 percent of its 13F equity portfolio to NOG.

As aggregate interest increased, key hedge funds have been driving this bullishness. Graham Capital Management, managed by Kenneth Tropin, created the biggest position in Northern Oil & Gas, Inc. (NYSE:NOG). Graham Capital Management had $3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.8 million investment in the stock during the quarter. The other funds with brand new NOG positions are Donald Sussman’s Paloma Partners, Michael Gelband’s ExodusPoint Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s go over hedge fund activity in other stocks similar to Northern Oil & Gas, Inc. (NYSE:NOG). These stocks are Majesco (NASDAQ:MJCO), Tufin Software Technologies Ltd. (NYSE:TUFN), TherapeuticsMD Inc (NASDAQ:TXMD), Miller Industries, Inc. (NYSE:MLR), PDL BioPharma Inc. (NASDAQ:PDLI), Gladstone Land Corporation (NASDAQ:LAND), and MTS Systems Corporation (NASDAQ:MTSC). This group of stocks’ market valuations are closest to NOG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MJCO 1 89 0
TUFN 5 2504 0
TXMD 10 20716 1
MLR 10 55813 -1
PDLI 16 69659 2
LAND 7 15198 -1
MTSC 15 25736 1
Average 9.1 27102 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $50 million in NOG’s case. PDL BioPharma Inc. (NASDAQ:PDLI) is the most popular stock in this table. On the other hand Majesco (NASDAQ:MJCO) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Northern Oil & Gas, Inc. (NYSE:NOG) is more popular among hedge funds. Our overall hedge fund sentiment score for NOG is 90. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately NOG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NOG were disappointed as the stock returned -31.7% during the third quarter 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.