Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Northwest Pipe Company (NASDAQ:NWPX).
Is NWPX a good stock to buy now? The best stock pickers were selling. The number of bullish hedge fund bets shrunk by 3 in recent months. Northwest Pipe Company (NASDAQ:NWPX) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 13. Our calculations also showed that NWPX 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). There were 13 hedge funds in our database with NWPX holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let’s review the fresh hedge fund action regarding Northwest Pipe Company (NASDAQ:NWPX).
Do Hedge Funds Think NWPX Is A Good Stock To Buy Now?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the second quarter of 2020. By comparison, 12 hedge funds held shares or bullish call options in NWPX a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Northwest Pipe Company (NASDAQ:NWPX), worth close to $24.7 million, amounting to 0.3% of its total 13F portfolio. On Royce & Associates’s heels is Manatuck Hill Partners, led by Mark Broach, holding a $2.8 million position; 1.3% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism contain D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management and Prem Watsa’s Fairfax Financial Holdings. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Northwest Pipe Company (NASDAQ:NWPX), around 1.27% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.27 percent of its 13F equity portfolio to NWPX.
Judging by the fact that Northwest Pipe Company (NASDAQ:NWPX) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of fund managers who sold off their full holdings by the end of the third quarter. At the top of the heap, Brian C. Freckmann’s Lyon Street Capital sold off the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $1.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $1.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Northwest Pipe Company (NASDAQ:NWPX). These stocks are Escalade, Inc. (NASDAQ:ESCA), InfuSystem Holdings, Inc. (NYSE:INFU), Invacare Corporation (NYSE:IVC), BBX Capital Corporation (NYSE:BBX), CECO Environmental Corp. (NASDAQ:CECE), RADA Electronic Industries Ltd. (NASDAQ:RADA), and GasLog Ltd (NYSE:GLOG). This group of stocks’ market valuations are closest to NWPX’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 10.1 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $35 million in NWPX’s case. Invacare Corporation (NYSE:IVC) is the most popular stock in this table. On the other hand RADA Electronic Industries Ltd. (NASDAQ:RADA) is the least popular one with only 7 bullish hedge fund positions. Northwest Pipe Company (NASDAQ:NWPX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NWPX is 40.1. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately NWPX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NWPX investors were disappointed as the stock returned 4.8% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.