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Is Norfolk Southern Corp. (NSC) Going to Burn These Hedge Funds?

Is Norfolk Southern Corp. (NYSE:NSC) a sound investment today? The best stock pickers are taking a bullish view. The number of long hedge fund bets rose by 3 lately.

Norfolk Southern Corp. (NYSE:NSC)

If you’d ask most investors, hedge funds are viewed as underperforming, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, we choose to focus on the crème de la crème of this group, around 450 funds. It is widely believed that this group controls the majority of the hedge fund industry’s total capital, and by paying attention to their best investments, we have come up with a few investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Equally as key, optimistic insider trading activity is another way to parse down the financial markets. Obviously, there are a number of motivations for an insider to sell shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several empirical studies have demonstrated the valuable potential of this tactic if you understand what to do (learn more here).

Consequently, let’s take a look at the key action surrounding Norfolk Southern Corp. (NYSE:NSC).

Hedge fund activity in Norfolk Southern Corp. (NYSE:NSC)

Heading into Q2, a total of 37 of the hedge funds we track held long positions in this stock, a change of 9% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably.

According to our comprehensive database, Ken Griffin’s Citadel Investment Group had the most valuable position in Norfolk Southern Corp. (NYSE:NSC), worth close to $200.9 million, comprising 0.3% of its total 13F portfolio. Coming in second is Michael Karsch of Karsch Capital Management, with a $126.4 million position; the fund has 7.8% of its 13F portfolio invested in the stock. Remaining hedgies with similar optimism include John Armitage’s Egerton Capital Limited, Bill Miller’s Legg Mason Capital Management and Jean-Marie Eveillard’s First Eagle Investment Management.

As industrywide interest jumped, specific money managers have been driving this bullishness. Karsch Capital Management, managed by Michael Karsch, created the most valuable position in Norfolk Southern Corp. (NYSE:NSC). Karsch Capital Management had 126.4 million invested in the company at the end of the quarter. John Armitage’s Egerton Capital Limited also initiated a $121.6 million position during the quarter. The following funds were also among the new NSC investors: Jean-Marie Eveillard’s First Eagle Investment Management, Michael Karsch’s Karsch Capital Management, and Alexander Mitchell’s Scopus Asset Management.

How have insiders been trading Norfolk Southern Corp. (NYSE:NSC)?

Insider buying is at its handiest when the company in focus has experienced transactions within the past half-year. Over the last 180-day time frame, Norfolk Southern Corp. (NYSE:NSC) has seen zero unique insiders buying, and 6 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Norfolk Southern Corp. (NYSE:NSC). These stocks are Union Pacific Corporation (NYSE:UNP), Kansas City Southern (NYSE:KSU), Canadian National Railway (USA) (NYSE:CNI), Canadian Pacific Railway Limited (USA) (NYSE:CP), and CSX Corporation (NYSE:CSX). All of these stocks are in the railroads industry and their market caps resemble NSC’s market cap.