Hedge Funds Have Never Been This Bullish On National Oilwell Varco, Inc. (NOV)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in National Oilwell Varco, Inc. (NYSE:NOV)? The smart money sentiment can provide an answer to this question.

Is National Oilwell Varco, Inc. (NYSE:NOV) a splendid investment right now? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets moved up by 5 recently. Our calculations also showed that NOV isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). NOV was in 31 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with NOV holdings at the end of the previous quarter.

In the eyes of most stock holders, hedge funds are assumed to be worthless, old investment vehicles of the past. While there are more than 8000 funds in operation at the moment, Our experts choose to focus on the moguls of this group, around 850 funds. It is estimated that this group of investors watch over the lion’s share of the smart money’s total capital, and by tracking their finest stock picks, Insider Monkey has found several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing National Oilwell Varco, Inc. (NYSE:NOV).

What does smart money think about National Oilwell Varco, Inc. (NYSE:NOV)?

Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NOV over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in National Oilwell Varco, Inc. (NYSE:NOV) was held by Pzena Investment Management, which reported holding $743.9 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $63.8 million position. Other investors bullish on the company included Ariel Investments, Citadel Investment Group, and Contrarius Investment Management. In terms of the portfolio weights assigned to each position Mountain Lake Investment Management allocated the biggest weight to National Oilwell Varco, Inc. (NYSE:NOV), around 7.72% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 3.47 percent of its 13F equity portfolio to NOV.

Now, key money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in National Oilwell Varco, Inc. (NYSE:NOV). Alyeska Investment Group had $14.6 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $10.1 million position during the quarter. The following funds were also among the new NOV investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Sara Nainzadeh’s Centenus Global Management, and D. E. Shaw’s D E Shaw.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as National Oilwell Varco, Inc. (NYSE:NOV) but similarly valued. We will take a look at Vail Resorts, Inc. (NYSE:MTN), Black Knight, Inc. (NYSE:BKI), NICE Ltd. (NASDAQ:NICE), and Apache Corporation (NYSE:APA). This group of stocks’ market values match NOV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTN 33 552480 -6
BKI 31 529645 -14
NICE 19 425511 2
APA 34 608891 6
Average 29.25 529132 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $529 million. That figure was $1020 million in NOV’s case. Apache Corporation (NYSE:APA) is the most popular stock in this table. On the other hand NICE Ltd. (NASDAQ:NICE) is the least popular one with only 19 bullish hedge fund positions. National Oilwell Varco, Inc. (NYSE:NOV) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NOV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NOV were disappointed as the stock returned -64.5% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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