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Should You Avoid NN, Inc. (NNBR)?

How do we determine whether NN, Inc. (NASDAQ:NNBR) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

NN, Inc. (NASDAQ:NNBR) was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. NNBR shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 6 hedge funds in our database with NNBR holdings at the end of the previous quarter. 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 below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
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.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a glance at the latest hedge fund action surrounding NN, Inc. (NASDAQ:NNBR).

What does smart money think about NN, Inc. (NASDAQ:NNBR)?

Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NNBR over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Legion Partners Asset Management was the largest shareholder of NN, Inc. (NASDAQ:NNBR), with a stake worth $26.1 million reported as of the end of September. Trailing Legion Partners Asset Management was Royce & Associates, which amassed a stake valued at $9.5 million. Citadel Investment Group, ExodusPoint Capital, and Ellington 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 6.4% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to NNBR.

Because NN, Inc. (NASDAQ:NNBR) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds who were dropping their entire stakes last quarter. At the top of the heap, Renaissance Technologies dropped the largest investment of all the hedgies followed by Insider Monkey, worth an estimated $0.4 million in stock, and James A. Mitarotonda’s Barington Capital Group was right behind this move, as the fund dropped about $0 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to NN, Inc. (NASDAQ:NNBR). We will take a look at Minerva Neurosciences, Inc (NASDAQ:NERV), Southern First Bancshares, Inc. (NASDAQ:SFST), Alphatec Holdings Inc (NASDAQ:ATEC), and Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL). This group of stocks’ market caps are similar to NNBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NERV 10 28964 1
SFST 5 33274 -2
ATEC 8 34122 3
AOSL 14 45381 4
Average 9.25 35435 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $37 million in NNBR’s case. Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is the most popular stock in this table. On the other hand Southern First Bancshares, Inc. (NASDAQ:SFST) 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 SFST. 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 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 NNBR as the stock returned 22.2% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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