Is NOV A Good Stock To Buy According To Hedge Funds?

In this article we will take a look at whether hedge funds think National Oilwell Varco, Inc. (NYSE:NOV) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is NOV a good stock to buy? National Oilwell Varco, Inc. (NYSE:NOV) shareholders have witnessed an increase in enthusiasm from smart money recently. National Oilwell Varco, Inc. (NYSE:NOV) was in 33 hedge funds’ portfolios at the end of September. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 30 hedge funds in our database with NOV positions at the end of the second quarter. Our calculations also showed that NOV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

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 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 view the new hedge fund action encompassing National Oilwell Varco, Inc. (NYSE:NOV).

Do Hedge Funds Think NOV Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NOV over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NOV A Good Stock To Buy?

More specifically, Pzena Investment Management was the largest shareholder of National Oilwell Varco, Inc. (NYSE:NOV), with a stake worth $343.8 million reported as of the end of September. Trailing Pzena Investment Management was Oldfield Partners, which amassed a stake valued at $68.5 million. Renaissance Technologies, Citadel Investment Group, and Ariel Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Oldfield Partners allocated the biggest weight to National Oilwell Varco, Inc. (NYSE:NOV), around 7.39% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, setting aside 3.53 percent of its 13F equity portfolio to NOV.

Consequently, some big names have been driving this bullishness. Kettle Hill Capital Management, managed by Andrew Kurita, established the largest position in National Oilwell Varco, Inc. (NYSE:NOV). Kettle Hill Capital Management had $5.6 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, David Harding’s Winton Capital Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as National Oilwell Varco, Inc. (NYSE:NOV) but similarly valued. These stocks are MSC Industrial Direct Co Inc (NYSE:MSM), The Hanover Insurance Group, Inc. (NYSE:THG), Texas Pacific Land Trust (NYSE:TPL), The Hain Celestial Group, Inc. (NASDAQ:HAIN), Highwoods Properties Inc (NYSE:HIW), Grupo Televisa SAB (NYSE:TV), and Grupo Aeroportuario del Sureste (NYSE:ASR). This group of stocks’ market caps are closest to NOV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSM 22 266847 -8
THG 27 142850 2
TPL 13 762288 -1
HAIN 21 892531 -3
HIW 25 262650 -5
TV 17 499490 -4
ASR 10 51222 -1
Average 19.3 411125 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $411 million. That figure was $530 million in NOV’s case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste (NYSE:ASR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks National Oilwell Varco, Inc. (NYSE:NOV) is more popular among hedge funds. Our overall hedge fund sentiment score for NOV is 88. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on NOV as the stock returned 51.2% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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