Hedge Funds Keep Buying Neogen Corporation (NEOG)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Neogen Corporation (NASDAQ:NEOG) and determine whether hedge funds had an edge regarding this stock.

Neogen Corporation (NASDAQ:NEOG) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. NEOG investors should be aware of an increase in hedge fund interest in recent months. There were 16 hedge funds in our database with NEOG holdings at the end of March. Our calculations also showed that NEOG 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.

To most shareholders, hedge funds are assumed to be underperforming, old investment vehicles of the past. While there are greater than 8000 funds in operation at the moment, We look at the top tier of this club, about 850 funds. It is estimated that this group of investors command the lion’s share of the smart money’s total capital, and by shadowing their unrivaled investments, Insider Monkey has determined a few investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually 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 .


Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a gander at the key hedge fund action surrounding Neogen Corporation (NASDAQ:NEOG).

How have hedgies been trading Neogen Corporation (NASDAQ:NEOG)?

At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in NEOG a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is NEOG A Good Stock To Buy?

The largest stake in Neogen Corporation (NASDAQ:NEOG) was held by Select Equity Group, which reported holding $15.4 million worth of stock at the end of September. It was followed by D E Shaw with a $8.1 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Royce & Associates. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Neogen Corporation (NASDAQ:NEOG), around 0.91% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to NEOG.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, established the largest position in Neogen Corporation (NASDAQ:NEOG). GLG Partners had $5.8 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Neogen Corporation (NASDAQ:NEOG). We will take a look at First Financial Bankshares Inc (NASDAQ:FFIN), TriNet Group Inc (NYSE:TNET), SelectQuote, Inc. (NYSE:SLQT), HUYA Inc. (NYSE:HUYA), Toll Brothers Inc (NYSE:TOL), Essent Group Ltd (NYSE:ESNT), and ONE Gas Inc (NYSE:OGS). This group of stocks’ market caps resemble NEOG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FFIN 18 20741 4
TNET 21 338757 2
SLQT 29 289573 29
HUYA 21 346427 3
TOL 39 428011 19
ESNT 29 260562 3
OGS 20 32804 4
Average 25.3 245268 9.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $40 million in NEOG’s case. Toll Brothers Inc (NYSE:TOL) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Neogen Corporation (NASDAQ:NEOG) is even less popular than FFIN. Our overall hedge fund sentiment score for NEOG is 37. 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. Hedge funds dodged a bullet by taking a bearish stance towards NEOG. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September but managed to beat the market by 19.3 percentage points. Unfortunately NEOG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NEOG investors were disappointed as the stock returned 0.8% in the third quarter 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 so far in 2020.

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