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Were Hedge Funds Right About Piling Into Northrop Grumman Corporation (NOC)?

We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of June 28th. In this article, we look at what those funds think of Northrop Grumman Corporation (NYSE:NOC) based on that data.

Northrop Grumman Corporation (NYSE:NOC) investors should be aware of an increase in hedge fund sentiment recently. NOC was in 37 hedge funds’ portfolios at the end of June. There were 35 hedge funds in our database with NOC positions at the end of the previous quarter. Our calculations also showed that NOC isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).

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’ 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 40 percentage points since May 2014 through May 30, 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.

Aaron Cowen Suvretta Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the latest hedge fund action encompassing Northrop Grumman Corporation (NYSE:NOC).

How have hedgies been trading Northrop Grumman Corporation (NYSE:NOC)?

Heading into the third quarter of 2019, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NOC over the last 16 quarters. So, let’s examine 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

More specifically, Alkeon Capital Management was the largest shareholder of Northrop Grumman Corporation (NYSE:NOC), with a stake worth $118.5 million reported as of the end of March. Trailing Alkeon Capital Management was AQR Capital Management, which amassed a stake valued at $96.3 million. Citadel Investment Group, Suvretta Capital Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Suvretta Capital Management, managed by Aaron Cowen, established the largest position in Northrop Grumman Corporation (NYSE:NOC). Suvretta Capital Management had $73.9 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $32.5 million position during the quarter. The other funds with brand new NOC positions are Zach Schreiber’s Point State Capital, Nick Niell’s Arrowgrass Capital Partners, and Gregg Moskowitz’s Interval Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Northrop Grumman Corporation (NYSE:NOC) but similarly valued. We will take a look at Zoetis Inc (NYSE:ZTS), Illumina, Inc. (NASDAQ:ILMN), Schlumberger Limited (NYSE:SLB), and The Charles Schwab Corporation (NYSE:SCHW). All of these stocks’ market caps are similar to NOC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZTS 40 2060753 3
ILMN 43 1354306 1
SLB 41 1851257 -8
SCHW 48 2698349 -3
Average 43 1991166 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1991 million. That figure was $600 million in NOC’s case. The Charles Schwab Corporation (NYSE:SCHW) is the most popular stock in this table. On the other hand Zoetis Inc (NYSE:ZTS) is the least popular one with only 40 bullish hedge fund positions. Compared to these stocks Northrop Grumman Corporation (NYSE:NOC) is even less popular than ZTS. Hedge funds clearly dropped the ball on NOC 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NOC as the stock returned 16.4% during the third quarter and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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