Should I Buy NN, Inc. (NNBR)?

Is NN, Inc. (NASDAQ:NNBR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in NN, Inc. (NASDAQ:NNBR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that NNBR 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). At the end of this article we will also compare NNBR to other stocks including Retractable Technologies, Inc. (NYSE:RVP), Tuscan Holdings Corp. II (NASDAQ:THCA), and Regis Corporation (NYSE:RGS) to get a better sense of its popularity.

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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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. With all of this in mind we’re going to take a look at the recent hedge fund action regarding NN, Inc. (NASDAQ:NNBR).

What have hedge funds been doing with NN, Inc. (NASDAQ:NNBR)?

At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in NNBR over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Legion Partners Asset Management was the largest shareholder of NN, Inc. (NASDAQ:NNBR), with a stake worth $20.1 million reported as of the end of September. Trailing Legion Partners Asset Management was Royce & Associates, which amassed a stake valued at $2.1 million. Arrowstreet Capital, Nantahala Capital Management, and PEAK6 Capital Management 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 Legion Partners Asset Management allocated the biggest weight to NN, Inc. (NASDAQ:NNBR), around 4.8% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to NNBR.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was PEAK6 Capital Management).

Let’s check out hedge fund activity in other stocks similar to NN, Inc. (NASDAQ:NNBR). We will take a look at Retractable Technologies, Inc. (NYSE:RVP), Tuscan Holdings Corp. II (NASDAQ:THCA), Regis Corporation (NYSE:RGS), QEP Resources Inc (NYSE:QEP), Ryerson Holding Corporation (NYSE:RYI), Fulcrum Therapeutics, Inc. (NASDAQ:FULC), and Houghton Mifflin Harcourt Co (NASDAQ:HMHC). This group of stocks’ market valuations are closest to NNBR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RVP 5 12128 1
THCA 8 33185 0
RGS 12 84596 2
QEP 14 21907 -5
RYI 13 10861 0
FULC 10 40391 -1
HMHC 17 58828 -3
Average 11.3 37414 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $25 million in NNBR’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Retractable Technologies, Inc. (NYSE:RVP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks NN, Inc. (NASDAQ:NNBR) is even less popular than RVP. Our overall hedge fund sentiment score for NNBR is 13.8. 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. 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 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on NNBR as the stock returned 24.8% since Q3 (through November 27th) and outperformed the market by an even larger margin.

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