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Hedge Funds Have Never Been This Bullish On Northrop Grumman Corporation (NOC)

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 Northrop Grumman Corporation (NYSE:NOC) and determine whether the smart money was really smart about this stock.

Is Northrop Grumman Corporation (NYSE:NOC) undervalued? Investors who are in the know were turning bullish. The number of bullish hedge fund bets advanced by 2 in recent months. Northrop Grumman Corporation (NYSE:NOC) was in 47 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NOC 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.

In the eyes of most shareholders, hedge funds are assumed to be underperforming, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation at present, We look at the top tier of this club, about 850 funds. It is estimated that this group of investors preside over the lion’s share of the smart money’s total asset base, and by tracking their best investments, Insider Monkey has determined various investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat 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 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Eric Mandelblatt Soroban Capital Partners

Eric Mandelblatt of Soroban Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s go over the fresh hedge fund action surrounding Northrop Grumman Corporation (NYSE:NOC).

How have hedgies been trading Northrop Grumman Corporation (NYSE:NOC)?

At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the first quarter of 2020. On the other hand, there were a total of 37 hedge funds with a bullish position in NOC a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

More specifically, Soroban Capital Partners was the largest shareholder of Northrop Grumman Corporation (NYSE:NOC), with a stake worth $291.4 million reported as of the end of September. Trailing Soroban Capital Partners was Alkeon Capital Management, which amassed a stake valued at $112.8 million. Millennium Management, Citadel Investment Group, and AQR Capital 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 Heard Capital allocated the biggest weight to Northrop Grumman Corporation (NYSE:NOC), around 8.37% of its 13F portfolio. Soroban Capital Partners is also relatively very bullish on the stock, designating 3.73 percent of its 13F equity portfolio to NOC.

As industrywide interest jumped, some big names have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the biggest position in Northrop Grumman Corporation (NYSE:NOC). Adage Capital Management had $23.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $9.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Chen Tianqiao’s Shanda Asset Management, and Jinghua Yan’s TwinBeech Capital.

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. These stocks are Global Payments Inc (NYSE:GPN), Sea Limited (NYSE:SE), Truist Financial Corporation (NYSE:TFC), CNOOC Limited (NYSE:CEO), Boston Scientific Corporation (NYSE:BSX), Intercontinental Exchange Inc (NYSE:ICE), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks’ market values are similar to NOC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPN 66 3311740 -1
SE 82 6358325 6
TFC 33 287639 -1
CEO 13 166646 2
BSX 66 2312667 7
ICE 60 2754652 -1
BNS 13 252173 1
Average 47.6 2206263 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.6 hedge funds with bullish positions and the average amount invested in these stocks was $2206 million. That figure was $990 million in NOC’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. Northrop Grumman Corporation (NYSE:NOC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NOC is 61.6. 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. This is a slightly negative signal and 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately NOC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NOC investors were disappointed as the stock returned 11.9% since Q2 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.