Hedge Funds Are Warming Up To Northrop Grumman Corporation (NOC)

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Northrop Grumman Corporation (NYSE:NOC).

Northrop Grumman Corporation (NYSE:NOC) was in 43 hedge funds’ portfolios at the end of September. NOC has experienced an increase in hedge fund sentiment recently. There were 37 hedge funds in our database with NOC positions at the end of the previous quarter. Our calculations also showed that NOC isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action regarding Northrop Grumman Corporation (NYSE:NOC).

How are hedge funds trading Northrop Grumman Corporation (NYSE:NOC)?

At the end of the third quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NOC over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with NOC Positions

Among these funds, AQR Capital Management held the most valuable stake in Northrop Grumman Corporation (NYSE:NOC), which was worth $166.4 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $151.5 million worth of shares. Suvretta Capital Management, Millennium Management, and Scopus Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to Northrop Grumman Corporation (NYSE:NOC), around 3.33% of its portfolio. Suvretta Capital Management is also relatively very bullish on the stock, dishing out 2.91 percent of its 13F equity portfolio to NOC.

As industrywide interest jumped, some big names were breaking ground themselves. Paloma Partners, managed by Donald Sussman, initiated the largest position in Northrop Grumman Corporation (NYSE:NOC). Paloma Partners had $43 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $26.1 million investment in the stock during the quarter. The other funds with brand new NOC positions are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Michael Gelband’s ExodusPoint Capital, and Bruce Kovner’s Caxton Associates.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Northrop Grumman Corporation (NYSE:NOC) but similarly valued. We will take a look at ConocoPhillips Company (NYSE:COP), Colgate-Palmolive Company (NYSE:CL), Equinor ASA (NYSE:EQNR), and Enterprise Products Partners L.P. (NYSE:EPD). 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
COP 65 2901952 8
CL 42 2061209 0
EQNR 14 392283 1
EPD 21 301985 2
Average 35.5 1414357 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1414 million. That figure was $843 million in NOC’s case. ConocoPhillips Company (NYSE:COP) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 14 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately NOC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NOC were disappointed as the stock returned -6.8% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.