How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Newmark Group, Inc. (NASDAQ:NMRK) and determine whether hedge funds had an edge regarding this stock.
Newmark Group, Inc. (NASDAQ:NMRK) has experienced an increase in hedge fund interest in recent months. Our calculations also showed that NMRK 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.
If you'd ask most traders, hedge funds are viewed as unimportant, old investment vehicles of yesteryear. While there are over 8000 funds in operation at the moment, We choose to focus on the aristocrats of this club, around 850 funds. Most estimates calculate that this group of people orchestrate most of the hedge fund industry's total capital, and by paying attention to their first-class picks, Insider Monkey has revealed a few investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_758437" align="aligncenter" width="400"] Michael Price of MFP Investors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let's go over the fresh hedge fund action regarding Newmark Group, Inc. (NASDAQ:NMRK).
How have hedgies been trading Newmark Group, Inc. (NASDAQ:NMRK)?
At Q1's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NMRK over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Newmark Group, Inc. (NASDAQ:NMRK) was held by EJF Capital, which reported holding $13.1 million worth of stock at the end of September. It was followed by Cardinal Capital with a $11.8 million position. Other investors bullish on the company included Empyrean Capital Partners, Arrowstreet Capital, and Paulson & Co. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Newmark Group, Inc. (NASDAQ:NMRK), around 2.77% of its 13F portfolio. Empyrean Capital Partners is also relatively very bullish on the stock, earmarking 0.68 percent of its 13F equity portfolio to NMRK.
As one would reasonably expect, specific money managers have been driving this bullishness. Empyrean Capital Partners, managed by Michael A. Price and Amos Meron, created the most valuable position in Newmark Group, Inc. (NASDAQ:NMRK). Empyrean Capital Partners had $9.9 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Greg Eisner's Engineers Gate Manager, and Cliff Asness's AQR Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Newmark Group, Inc. (NASDAQ:NMRK) but similarly valued. These stocks are Saul Centers Inc (NYSE:BFS), Raven Industries, Inc. (NASDAQ:RAVN), Teekay LNG Partners L.P. (NYSE:TGP), and Perdoceo Education Corporation (NASDAQ:PRDO). This group of stocks' market caps match NMRK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BFS,7,25019,-1 RAVN,11,73375,-2 TGP,10,38247,-3 PRDO,23,141084,4 Average,12.75,69431,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $67 million in NMRK's case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Saul Centers Inc (NYSE:BFS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Newmark Group, Inc. (NASDAQ:NMRK) 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 and still beat the market by 15.5 percentage points. Unfortunately NMRK wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NMRK were disappointed as the stock returned 14.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.