Is Nortek Inc (NTK) A Good Stock To Buy?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Nortek Inc (NASDAQ:NTK).

Nortek Inc (NASDAQ:NTK) has seen an increase in support from the world’s most elite money managers of late. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Tennant Company (NYSE:TNC), Knight Capital Group Inc. (NYSE:KCG), and NewLink Genetics Corp (NASDAQ:NLNK) to gather more data points.

Follow Nortek Inc (NASDAQ:NTK)

Today there are numerous tools shareholders employ to size up publicly traded companies. A duo of the best tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top investment managers can trounce the market by a solid amount (see the details here).

Keeping this in mind, we’re going to check out the recent action surrounding Nortek Inc (NASDAQ:NTK).

What have hedge funds been doing with Nortek Inc (NASDAQ:NTK)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the previous quarter. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jeffrey Gates’s Gates Capital Management has the most valuable position in Nortek Inc (NASDAQ:NTK), worth close to $221.8 million, accounting for 8.6% of its total 13F portfolio. Coming in second is Anchorage Advisors, led by Kevin Michael Ulrich and Anthony Davis, holding a $86.8 million position; 2.8% of its 13F portfolio is allocated to the company. Remaining peers that are bullish encompass Edward A. Mule’s Silver Point Capital, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors and Meridee A. Moore’s Watershed Asset Management.

Now, key hedge funds have been driving this bullishness. Pentwater Capital Management, managed by Matthew Halbower, assembled the largest position in Nortek Inc (NASDAQ:NTK). Pentwater Capital Management had $2.5 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $0.6 million position during the quarter. The following funds were also among the new NTK investors: Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Lawrence Sapanski’s Scoria Capital, and Steve Cohen’s Point72 Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Nortek Inc (NASDAQ:NTK) but similarly valued. We will take a look at Tennant Company (NYSE:TNC), Knight Capital Group Inc. (NYSE:KCG), NewLink Genetics Corp (NASDAQ:NLNK), and Synergy Resources Corp (NYSEAMEX:SYRG). This group of stocks’ market valuations are closest to NTK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TNC 14 111251 3
KCG 14 69189 -9
NLNK 13 132952 -2
SYRG 13 54308 -4

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $414 million in NTK’s case. Tennant Company (NYSE:TNC) is the most popular stock in this table, while NewLink Genetics Corp (NASDAQ:NLNK) is the least popular one with only 13 bullish hedge fund positions. Nortek Inc (NASDAQ:NTK) 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 TNC might be a better candidate to consider a long position.