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Hedge Funds Have Never Been This Bullish On Northwest Natural Holding Company (NWN)

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Northwest Natural Holding Company (NYSE:NWN) shareholders have witnessed an increase in support from the world’s most elite money managers recently. NWN was in 16 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with NWN positions at the end of the previous quarter. Our calculations also showed that NWN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 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 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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the new hedge fund action regarding Northwest Natural Holding Company (NYSE:NWN).

What have hedge funds been doing with Northwest Natural Holding Company (NYSE:NWN)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NWN over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Northwest Natural Holding Company (NYSE:NWN), with a stake worth $36.4 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $13.4 million. Two Sigma Advisors, GAMCO Investors, and Winton 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 Quantinno Capital allocated the biggest weight to Northwest Natural Holding Company (NYSE:NWN), around 0.24% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to NWN.

As aggregate interest increased, key money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, assembled the most outsized position in Northwest Natural Holding Company (NYSE:NWN). Winton Capital Management had $1.9 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $0.8 million position during the quarter. The following funds were also among the new NWN investors: Joel Greenblatt’s Gotham Asset Management, David E. Shaw’s D E Shaw, and Hoon Kim’s Quantinno Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Northwest Natural Holding Company (NYSE:NWN) but similarly valued. We will take a look at Tenable Holdings, Inc. (NASDAQ:TENB), Cactus, Inc. (NYSE:WHD), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), and First Bancorp (NYSE:FBP). This group of stocks’ market caps match NWN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TENB 18 135666 1
WHD 18 160038 -6
ICPT 21 245421 -3
FBP 21 198063 -2
Average 19.5 184797 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $64 million in NWN’s case. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is the most popular stock in this table. On the other hand Tenable Holdings, Inc. (NASDAQ:TENB) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Northwest Natural Holding Company (NYSE:NWN) is even less popular than TENB. Hedge funds dodged a bullet by taking a bearish stance towards NWN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NWN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NWN investors were disappointed as the stock returned -2.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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