NN, Inc. (NNBR): Hedge Funds De-risking

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of NN, Inc. (NASDAQ:NNBR) based on that data.

Is NN, Inc. (NASDAQ:NNBR) going to take off soon? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions fell by 2 recently. Our calculations also showed that NNBR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NNBR was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with NNBR holdings at the end of the previous quarter.

Video: 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’ 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 58 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the recent hedge fund action surrounding NN, Inc. (NASDAQ:NNBR).

How have hedgies been trading NN, Inc. (NASDAQ:NNBR)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NNBR over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is NNBR A Good Stock To Buy?

The largest stake in NN, Inc. (NASDAQ:NNBR) was held by Legion Partners Asset Management, which reported holding $6.7 million worth of stock at the end of September. It was followed by Royce & Associates with a $1.3 million position. Other investors bullish on the company included Armistice Capital, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to NN, Inc. (NASDAQ:NNBR), around 2.82% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to NNBR.

Seeing as NN, Inc. (NASDAQ:NNBR) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that decided to sell off their positions entirely in the first quarter. It’s worth mentioning that Ali Motamed’s Invenomic Capital Management dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $1.6 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund dropped about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to NN, Inc. (NASDAQ:NNBR). These stocks are Aquestive Therapeutics, Inc. (NASDAQ:AQST), Cyclerion Therapeutics, Inc. (NASDAQ:CYCN), Aldeyra Therapeutics Inc (NASDAQ:ALDX), and Centennial Resource Development, Inc. (NASDAQ:CDEV). All of these stocks’ market caps resemble NNBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AQST 9 8380 -6
CYCN 11 20052 0
ALDX 12 23006 0
CDEV 18 17555 -11
Average 12.5 17248 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $10 million in NNBR’s case. Centennial Resource Development, Inc. (NASDAQ:CDEV) is the most popular stock in this table. On the other hand Aquestive Therapeutics, Inc. (NASDAQ:AQST) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks NN, Inc. (NASDAQ:NNBR) is even less popular than AQST. Hedge funds clearly dropped the ball on NNBR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on NNBR as the stock returned 208.7% so far in the second quarter and outperformed the market by an even larger margin.

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