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Should You Buy National Oilwell Varco, Inc. (NOV)?

Is National Oilwell Varco, Inc. (NYSE:NOV) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to find the winners in the stock market.

Hedge fund interest in National Oilwell Varco, Inc. (NYSE:NOV) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NOV to other stocks including PTC Inc (NASDAQ:PTC), The Gap Inc. (NYSE:GPS), and F5 Networks, Inc. (NASDAQ:FFIV) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

GOTHAM ASSET MANAGEMENT

We’re going to analyze the new hedge fund action surrounding National Oilwell Varco, Inc. (NYSE:NOV).

How have hedgies been trading National Oilwell Varco, Inc. (NYSE:NOV)?

At Q4’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards NOV over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NOV_mar2019

When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the number one position in National Oilwell Varco, Inc. (NYSE:NOV), worth close to $325.1 million, comprising 1.9% of its total 13F portfolio. The second largest stake is held by Jim Simons of Renaissance Technologies, with a $60.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions contain D. E. Shaw’s D E Shaw, Robert Joseph Caruso’s Select Equity Group and Cliff Asness’s AQR Capital Management.

Since National Oilwell Varco, Inc. (NYSE:NOV) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who were dropping their positions entirely heading into Q3. Interestingly, Anand Parekh’s Alyeska Investment Group sold off the biggest investment of the 700 funds monitored by Insider Monkey, totaling close to $52.7 million in stock. David Harding’s fund, Winton Capital Management, also dumped its stock, about $12.1 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as National Oilwell Varco, Inc. (NYSE:NOV) but similarly valued. These stocks are PTC Inc (NASDAQ:PTC), The Gap Inc. (NYSE:GPS), F5 Networks, Inc. (NASDAQ:FFIV), and Huaneng Power International Inc (NYSE:HNP). This group of stocks’ market caps are closest to NOV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTC 31 1395308 -15
GPS 20 221936 -9
FFIV 24 1091362 0
HNP 3 1184 -1
Average 19.5 677448 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $584 million in NOV’s case. PTC Inc (NASDAQ:PTC) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. National Oilwell Varco, Inc. (NYSE:NOV) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately NOV wasn’t in this group. Hedge funds that bet on NOV were disappointed as the stock returned 3.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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