Is Navigant Consulting, Inc. (NCI) Going to Burn These Hedge Funds?

At Insider Monkey we follow around 700 of the best-performing investors and even though many of them lost money in the last couple of months (70% of hedge funds lost money in October whereas S&P 500 ETF lost about 7%), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Hedge fund interest in Navigant Consulting, Inc. (NYSE:NCI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NCI to other stocks including Nuveen New York AMT-Free Quality Municipal (NYSE:NRK), PC Connection, Inc. (NASDAQ:CNXN), and PlayAGS, Inc. (NYSE:AGS) to get a better sense of its popularity.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

John Overdeck of Two Sigma

We’re going to check out the key hedge fund action encompassing Navigant Consulting, Inc. (NYSE:NCI).

How have hedgies been trading Navigant Consulting, Inc. (NYSE:NCI)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, no change from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards NCI over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

No of Hedge Funds with NCI Positions

More specifically, Pzena Investment Management was the largest shareholder of Navigant Consulting, Inc. (NYSE:NCI), with a stake worth $39.1 million reported as of the end of September. Trailing Pzena Investment Management was D E Shaw, which amassed a stake valued at $24.6 million. AQR Capital Management, Two Sigma Advisors, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Navigant Consulting, Inc. (NYSE:NCI) has experienced bearish sentiment from hedge fund managers, we can see that there exists a select few funds who were dropping their entire stakes last quarter. Interestingly, Will Cook’s Sunriver Management cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $12.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $1.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Navigant Consulting, Inc. (NYSE:NCI) but similarly valued. These stocks are Nuveen New York AMT-Free Quality Municipal Income Fund (NYSE:NRK), PC Connection, Inc. (NASDAQ:CNXN), PlayAGS, Inc. (NYSE:AGS), and Unisys Corporation (NYSE:UIS). All of these stocks’ market caps are closest to NCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NRK 2 2157 -2
CNXN 8 51481 1
AGS 15 84092 9
UIS 14 180425 0
Average 9.75 79539 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $90 million in NCI’s case. PlayAGS, Inc. (NYSE:AGS) is the most popular stock in this table. On the other hand Nuveen New York AMT-Free Quality Municipal Income Fund (NYSE:NRK) is the least popular one with only 2 bullish hedge fund positions. Navigant Consulting, Inc. (NYSE:NCI) 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. In this regard AGS might be a better candidate to consider a long position.

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