Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Quanex Building Products Corporation (NYSE:NX) a buy right now? The smart money is buying. The number of long hedge fund bets inched up by 4 lately. Our calculations also showed that NX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the key hedge fund action regarding Quanex Building Products Corporation (NYSE:NX).
How have hedgies been trading Quanex Building Products Corporation (NYSE:NX)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the second quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in NX a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Quanex Building Products Corporation (NYSE:NX) was held by Renaissance Technologies, which reported holding $19 million worth of stock at the end of September. It was followed by D E Shaw with a $8.4 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Royce & Associates. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Quanex Building Products Corporation (NYSE:NX), around 0.07% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to NX.
Now, key money managers have jumped into Quanex Building Products Corporation (NYSE:NX) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, assembled the biggest position in Quanex Building Products Corporation (NYSE:NX). Marshall Wace had $5.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.7 million investment in the stock during the quarter. The following funds were also among the new NX investors: Donald Sussman’s Paloma Partners, Michael Gelband’s ExodusPoint Capital, and Mike Vranos’s Ellington.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Quanex Building Products Corporation (NYSE:NX) but similarly valued. We will take a look at Genesco Inc. (NYSE:GCO), QCR Holdings, Inc. (NASDAQ:QCRH), Cars.com Inc. (NYSE:CARS), and SMART Global Holdings, Inc. (NASDAQ:SGH). This group of stocks’ market caps match NX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GCO | 18 | 60081 | 1 |
| QCRH | 9 | 64083 | 1 |
| CARS | 31 | 171735 | 2 |
| SGH | 17 | 285893 | 7 |
| Average | 18.75 | 145448 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $61 million in NX’s case. Cars.com Inc. (NYSE:CARS) is the most popular stock in this table. On the other hand QCR Holdings, Inc. (NASDAQ:QCRH) is the least popular one with only 9 bullish hedge fund positions. Quanex Building Products Corporation (NYSE:NX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NX, though not to the same extent, as the stock returned 7.6% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
