Is National CineMedia, Inc. (NCMI) Going To Burn These Hedge Funds ?

Does National CineMedia, Inc. (NASDAQ:NCMI) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

National CineMedia, Inc. (NASDAQ:NCMI) was in 17 hedge funds’ portfolios at the end of the third quarter of 2019. NCMI investors should be aware of an increase in support from the world’s most elite money managers recently. There were 16 hedge funds in our database with NCMI holdings at the end of the previous quarter. Our calculations also showed that NCMI 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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bill Miller

Bill Miller of Miller Value Partners

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. We’re going to take a gander at the recent hedge fund action encompassing National CineMedia, Inc. (NASDAQ:NCMI).

What does smart money think about National CineMedia, Inc. (NASDAQ:NCMI)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in NCMI a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Joe Milano’s Greenhouse Funds has the largest position in National CineMedia, Inc. (NASDAQ:NCMI), worth close to $21 million, amounting to 4.3% of its total 13F portfolio. Coming in second is Renaissance Technologies, with a $10.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Bill Miller’s Miller Value Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to National CineMedia, Inc. (NASDAQ:NCMI), around 4.26% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, earmarking 0.27 percent of its 13F equity portfolio to NCMI.

As aggregate interest increased, some big names have jumped into National CineMedia, Inc. (NASDAQ:NCMI) headfirst. Weld Capital Management, managed by Minhua Zhang, created the most valuable position in National CineMedia, Inc. (NASDAQ:NCMI). Weld Capital Management had $0.8 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates also initiated a $0.2 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management and Ken Griffin’s Citadel Investment Group.

Let’s also examine hedge fund activity in other stocks similar to National CineMedia, Inc. (NASDAQ:NCMI). We will take a look at Dorchester Minerals LP (NASDAQ:DMLP), Valhi, Inc. (NYSE:VHI), DMC Global Inc. (NASDAQ:BOOM), and Preferred Apartment Communities Inc. (NYSE:APTS). This group of stocks’ market values are closest to NCMI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DMLP 7 40449 0
VHI 6 4788 0
BOOM 22 92343 2
APTS 6 9024 -1
Average 10.25 36651 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $52 million in NCMI’s case. DMC Global Inc. (NASDAQ:BOOM) is the most popular stock in this table. On the other hand Valhi, Inc. (NYSE:VHI) is the least popular one with only 6 bullish hedge fund positions. National CineMedia, Inc. (NASDAQ:NCMI) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NCMI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NCMI were disappointed as the stock returned -16.3% 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 many of these stocks already outperformed the market so far this year.

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