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Newpark Resources Inc (NR) Surges 9% After Upgrade: But Is It Really A ‘Strong Buy’?

Newpark Resources Inc (NYSE:NR) rallied as much as 9.25% yesterday, finishing the day at $8.35, up by just under 6% on the day. The spike in the company’s shares came after an upgrade by Raymond James Financial, Inc. to a rating of “Strong Buy” from a previous rating of “Outperform”. On Tuesday, shares of the Woodlands, Texas-based maker of products utilized in the oil and gas industries, along with other companies related to the niche, saw their shares driven up by a rally in oil prices. The increase in shares of the oil and energy sector’s companies on Tuesday came in anticipation of the latest U.S. inventory data showing sustained demand for gasoline. However, oil prices declined Wednesday as it was revealed that supplies of crude oil decreased last week, while inventories of refined products rose. Meanwhile, Newpark Resources Inc (NYSE:NR) is still down by 12.47% year-to-date. In the past month alone the stock is down by 7.11%, despite the recent rally. Newpark Resources reported earnings of $0.01 per share on revenues of $208.50 million for the first quarter, announced on May 1, widely missing expectations of $0.12 per share and revenues of $250.46 million. Nonetheless, despite the disappointing numbers, hedge funds tracked by Insider Monkey appear to be confident in the stock.

Newpark Resources Inc (NR), NYSE:NR,

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from one quarter earlier. Furthermore, the overall value of holdings in the company increased to $62.26 million through the first quarter of 2015 from $45.43 million at the end of 2014 . This is a significant 37.05% increase, especially considering that the stock declined by 4.51% during the first quarter.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 142% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

Likewise, we also track insider moves in companies. Why? Because transactions such as sales or purchases of shares mean top management members are either bearish (though sales can not automatically be equated with bearish sentiment) or bullish in their own companies’ stocks. However, for Newpark Recourses, there were no recorded sales or purchases of shares by insiders in the first half of 2015.

With all of this in mind, let’s analyze the latest hedge fund action surrounding Newpark Resources Inc (NYSE:NR).

What does the smart money think about Newpark Resources Inc (NYSE:NR)?

According to hedge fund experts at Insider Monkey, Israel Englander‘s Millennium Management had the largest position in Newpark Resources Inc (NYSE:NR), worth close to $28.8 million, consisting of about 3.16 million shares. Coming in second is Royce & Associates, managed by Chuck Royce, which held a $17.2 million position of about 1.89 million shares. Other members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, Cliff Asness’ AQR Capital Management and Peter Muller’s PDT Partners.

Chuck Royce
Chuck Royce
Royce & Associates

As aggregate interest increased, some big names have jumped into Newpark Resources Inc (NYSE:NR) headfirst. As mentioned, PDT Partners, managed by Peter Muller, created the most valuable new position in Newpark Resources Inc (NYSE:NR). PDT Partners had $1.1 million invested in the company through ownership of 121,270 shares as of the end of the first quarter. Jim Simons’ Renaissance Technologies also held a $607,000 investment in the stock after the completion of the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, David Costen Haley’s HBK Investments, and David E. Shaw’s D.E. Shaw & Co., L.P.

With the very bullish sentiment by funds tracked by Insider Monkey as evidenced by the significant increase in total value of holdings, as well as the latest bullish call from analysts, Newpark Resources Inc (NYSE:NR) is looking good. We recommend a ‘Buy’, with the knowledge that volatility will continue to be present in the stock as commodity prices shift.

Disclosure: None

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