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Were Hedge Funds Right About Piling Into Norfolk Southern Corp. (NSC)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNorfolk Southern Corp. (NYSE:NSC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Norfolk Southern Corp. (NYSE:NSC) a buy right now? Money managers were becoming less hopeful. The number of long hedge fund positions shrunk by 1 in recent months. Our calculations also showed that NSC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Eric Mandelblatt Soroban Capital Partners

Eric Mandelblatt of Soroban Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Norfolk Southern Corp. (NYSE:NSC).

How have hedgies been trading Norfolk Southern Corp. (NYSE:NSC)?

At the end of the first quarter, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 47 hedge funds with a bullish position in NSC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Viking Global held the most valuable stake in Norfolk Southern Corp. (NYSE:NSC), which was worth $258.1 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $160.4 million worth of shares. Palestra Capital Management, Suvretta Capital Management, and Corvex Capital 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 Lodge Hill Capital allocated the biggest weight to Norfolk Southern Corp. (NYSE:NSC), around 5.34% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 4.14 percent of its 13F equity portfolio to NSC.

Judging by the fact that Norfolk Southern Corp. (NYSE:NSC) has faced falling interest from the smart money, logic holds that there lies a certain “tier” of money managers who sold off their entire stakes heading into Q4. Interestingly, Robert Pitts’s Steadfast Capital Management cut the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $93.2 million in stock, and Zach Schreiber’s Point State Capital was right behind this move, as the fund cut about $41.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Norfolk Southern Corp. (NYSE:NSC) but similarly valued. These stocks are BCE Inc. (NYSE:BCE), Vodafone Group Plc (NASDAQ:VOD), ABB Ltd (NYSE:ABB), and Newmont Corporation (NYSE:NEM). All of these stocks’ market caps are closest to NSC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCE 13 204550 -6
VOD 14 598782 -2
ABB 10 277115 0
NEM 43 1023580 9
Average 20 526007 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $526 million. That figure was $1173 million in NSC’s case. Newmont Corporation (NYSE:NEM) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Norfolk Southern Corp. (NYSE:NSC) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on NSC, though not to the same extent, as the stock returned 20.9% in Q2 and outperformed the market as well.

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