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Hedge Funds Have Never Been More Bullish On Northwest Pipe Company (NWPX)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Northwest Pipe Company (NASDAQ:NWPX) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Northwest Pipe Company (NASDAQ:NWPX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of the second quarter of 2019. 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 Roan Resources, Inc. (NYSE:ROAN), aTyr Pharma, Inc. (NASDAQ:LIFE), and ChannelAdvisor Corporation (NYSE:ECOM) to gather more data points. Our calculations also showed that NWPX isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AlphaOne Capital Partners' Returns, AUM and Holdings

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to check out the latest hedge fund action encompassing Northwest Pipe Company (NASDAQ:NWPX).

What does smart money think about Northwest Pipe Company (NASDAQ:NWPX)?

At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NWPX over the last 16 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

No of Hedge Funds with NWPX Positions

More specifically, Royce & Associates was the largest shareholder of Northwest Pipe Company (NASDAQ:NWPX), with a stake worth $27.2 million reported as of the end of March. Trailing Royce & Associates was Fairfax Financial Holdings, which amassed a stake valued at $3.5 million. D E Shaw, Renaissance Technologies, and AlphaOne Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the second quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Northwest Pipe Company (NASDAQ:NWPX) but similarly valued. We will take a look at Roan Resources, Inc. (NYSE:ROAN), aTyr Pharma, Inc. (NASDAQ:LIFE), ChannelAdvisor Corporation (NYSE:ECOM), and Cambium Networks Corporation (NASDAQ:CMBM). This group of stocks’ market valuations are similar to NWPX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROAN 14 86158 -4
LIFE 3 1856 -1
ECOM 14 44320 0
CMBM 11 12253 11
Average 10.5 36147 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $36 million in NWPX’s case. Roan Resources, Inc. (NYSE:ROAN) is the most popular stock in this table. On the other hand aTyr Pharma, Inc. (NASDAQ:LIFE) is the least popular one with only 3 bullish hedge fund positions. Northwest Pipe Company (NASDAQ:NWPX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on NWPX as the stock returned 9.2% during the same time frame and outperformed the market by an even larger margin.

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

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