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2019 Review: Top Hedge Fund Stocks vs. NCR Corporation (NCR)

Debasis Saha

Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards NCR Corporation (NYSE:NCR) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

NCR Corporation (NYSE:NCR) has experienced an increase in hedge fund sentiment in recent months. NCR was in 31 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with NCR positions at the end of the previous quarter. Our calculations also showed that NCR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_365194" align="alignnone" width="600"] David E. Shaw of D.E. Shaw[/caption]

David E. Shaw of D.E. Shaw

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a peek at the new hedge fund action surrounding NCR Corporation (NYSE:NCR).

What have hedge funds been doing with NCR Corporation (NYSE:NCR)?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NCR over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NCR A Good Stock To Buy?

More specifically, Nitorum Capital was the largest shareholder of NCR Corporation (NYSE:NCR), with a stake worth $54.6 million reported as of the end of September. Trailing Nitorum Capital was D E Shaw, which amassed a stake valued at $43.3 million. Engaged Capital, GLG Partners, and Marshall Wace 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 Nishkama Capital allocated the biggest weight to NCR Corporation (NYSE:NCR), around 20.91% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, designating 4.74 percent of its 13F equity portfolio to NCR.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into NCR Corporation (NYSE:NCR) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, created the biggest position in NCR Corporation (NYSE:NCR). Marshall Wace had $20.8 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital also made a $8.6 million investment in the stock during the quarter. The following funds were also among the new NCR investors: Josh Donfeld and David Rogers's Castle Hook Partners, Jeffrey Talpins's Element Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NCR Corporation (NYSE:NCR) but similarly valued. These stocks are Enstar Group Ltd. (NASDAQ:ESGR), Gold Fields Limited (NYSE:GFI), Azul S.A. (NYSE:AZUL), and New Jersey Resources Corp (NYSE:NJR). This group of stocks' market caps are similar to NCR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESGR,12,415383,2 GFI,17,282757,3 AZUL,12,134406,-1 NJR,14,82886,2 Average,13.75,228858,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $285 million in NCR's case. Gold Fields Limited (NYSE:GFI) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks NCR Corporation (NYSE:NCR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on NCR as the stock returned 52.9% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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