Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Should You Avoid Northrop Grumman Corporation (NOC)?

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Northrop Grumman Corporation (NYSE:NOC) during the quarter below.

Northrop Grumman Corporation (NYSE:NOC) investors should be aware of a decrease in enthusiasm from smart money in recent months. NOC was in 33 hedge funds’ portfolios at the end of September. There were 41 hedge funds in our database with NOC holdings at the end of the previous quarter. Our calculations also showed that NOC isn’t among the 30 most popular stocks among hedge funds.

In the eyes of most investors, hedge funds are assumed to be worthless, old investment vehicles of the past. While there are more than 8,000 funds with their doors open at the moment, Our researchers choose to focus on the moguls of this group, around 700 funds. It is estimated that this group of investors direct the lion’s share of the smart money’s total capital, and by keeping track of their highest performing equity investments, Insider Monkey has deciphered a few investment strategies that have historically outperformed the market. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by 6 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Let’s take a gander at the key hedge fund action regarding Northrop Grumman Corporation (NYSE:NOC).

What have hedge funds been doing with Northrop Grumman Corporation (NYSE:NOC)?

At Q3’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2018. By comparison, 37 hedge funds held shares or bullish call options in NOC heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with NOC Positions

Among these funds, AQR Capital Management held the most valuable stake in Northrop Grumman Corporation (NYSE:NOC), which was worth $665.9 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $106.6 million worth of shares. Moreover, Two Sigma Advisors, Citadel Investment Group, and Millennium Management were also bullish on Northrop Grumman Corporation (NYSE:NOC), allocating a large percentage of their portfolios to this stock.

Seeing as Northrop Grumman Corporation (NYSE:NOC) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedgies who sold off their entire stakes in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $94.3 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund sold off about $91.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 8 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Northrop Grumman Corporation (NYSE:NOC). These stocks are Simon Property Group, Inc (NYSE:SPG), Lloyds Banking Group PLC (NYSE:LYG), Illumina, Inc. (NASDAQ:ILMN), and Shire PLC (NASDAQ:SHPG). All of these stocks’ market caps resemble NOC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPG 25 812090 5
LYG 5 285815 -1
ILMN 45 1002845 7
SHPG 68 6058644 12
Average 35.75 2039849 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.04 billion. That figure was $1.29 billion in NOC’s case. Shire PLC (NASDAQ:SHPG) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Northrop Grumman Corporation (NYSE:NOC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SHPG might be a better candidate to consider a long position.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.