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Should I Avoid Navistar International Corp (NAV)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Navistar International Corp (NYSE:NAV) and determine whether hedge funds had an edge regarding this stock.

Navistar International Corp (NYSE:NAV) has experienced a decrease in hedge fund sentiment of late. Navistar International Corp (NYSE:NAV) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. There were 36 hedge funds in our database with NAV positions at the end of the first quarter. Our calculations also showed that NAV isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Rachesky MHR

Mark Rachesky of MHR Fund Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s go over the fresh hedge fund action regarding Navistar International Corp (NYSE:NAV).

Hedge fund activity in Navistar International Corp (NYSE:NAV)

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in NAV a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Icahn Capital LP held the most valuable stake in Navistar International Corp (NYSE:NAV), which was worth $471.8 million at the end of the third quarter. On the second spot was MHR Fund Management which amassed $457.5 million worth of shares. GAMCO Investors, TIG Advisors, and Renaissance Technologies 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 MHR Fund Management allocated the biggest weight to Navistar International Corp (NYSE:NAV), around 49.3% of its 13F portfolio. TIG Advisors is also relatively very bullish on the stock, setting aside 6.84 percent of its 13F equity portfolio to NAV.

Seeing as Navistar International Corp (NYSE:NAV) has experienced falling interest from the smart money, it’s easy to see that there is a sect of funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Robert Emil Zoellner’s Alpine Associates said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $13.4 million in stock, and John Paulson’s Paulson & Co was right behind this move, as the fund sold off about $3.7 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Navistar International Corp (NYSE:NAV). These stocks are STAAR Surgical Company (NASDAQ:STAA), Goosehead Insurance, Inc. (NASDAQ:GSHD), FirstCash, Inc. (NASDAQ:FCFS), Varonis Systems Inc (NASDAQ:VRNS), Insmed Incorporated (NASDAQ:INSM), MGIC Investment Corporation (NYSE:MTG), and NorthWestern Corporation (NYSE:NWE). This group of stocks’ market values are closest to NAV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STAA 20 920886 -1
GSHD 15 114944 4
FCFS 22 144073 6
VRNS 28 604539 8
INSM 30 613700 10
MTG 40 262992 -1
NWE 22 96622 3
Average 25.3 393965 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $394 million. That figure was $1246 million in NAV’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 15 bullish hedge fund positions. Navistar International Corp (NYSE:NAV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NAV is 65.5. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately NAV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NAV were disappointed as the stock returned 13.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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