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.

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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.