Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Northrop Grumman Corporation (NYSE:NOC).
Is NOC stock a buy or sell? Prominent investors were in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 2 in recent months. Northrop Grumman Corporation (NYSE:NOC) was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 47. Our calculations also showed that NOC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
To the average investor there are plenty of methods shareholders can use to value their stock investments. Some of the less known methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outclass the market by a superb margin (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Keeping this in mind we’re going to take a gander at the fresh hedge fund action regarding Northrop Grumman Corporation (NYSE:NOC).
Do Hedge Funds Think NOC Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in NOC over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, D. E. Shaw’s D E Shaw has the biggest position in Northrop Grumman Corporation (NYSE:NOC), worth close to $267.9 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $265.7 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions comprise Ken Griffin’s Citadel Investment Group, Renaissance Technologies and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Adam Capital allocated the biggest weight to Northrop Grumman Corporation (NYSE:NOC), around 3.04% of its 13F portfolio. Ariose Capital is also relatively very bullish on the stock, dishing out 3 percent of its 13F equity portfolio to NOC.
Judging by the fact that Northrop Grumman Corporation (NYSE:NOC) has witnessed bearish sentiment from the smart money, we can see that there lies a certain “tier” of money managers who sold off their full holdings by the end of the fourth quarter. At the top of the heap, Jinghua Yan’s TwinBeech Capital said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, comprising an estimated $5.2 million in stock, and McKinley Capital Management was right behind this move, as the fund dropped about $4.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds by the end of the fourth quarter.
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. We will take a look at UBS Group AG (NYSE:UBS), Southern Copper Corporation (NYSE:SCCO), Waste Management, Inc. (NYSE:WM), Koninklijke Philips NV (NYSE:PHG), Bank of Montreal (NYSE:BMO), Monster Beverage Corp (NASDAQ:MNST), and Honda Motor Co Ltd (NYSE:HMC). This group of stocks’ market valuations resemble NOC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $1004 million. That figure was $1508 million in NOC’s case. Monster Beverage Corp (NASDAQ:MNST) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 8 bullish hedge fund positions. Northrop Grumman Corporation (NYSE:NOC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOC is 73. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately NOC wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on NOC were disappointed as the stock returned 1.8% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.