Is National Presto Industries Inc. (NYSE:NPK) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is National Presto Industries Inc. (NYSE:NPK) a buy right now? Prominent investors are taking a pessimistic view. The number of long hedge fund bets dropped by 3 in recent months. Our calculations also showed that NPK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 stocks that are in our short portfolio.
[caption id="attachment_193003" align="alignnone" width="600"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's check out the new hedge fund action regarding National Presto Industries Inc. (NYSE:NPK).
How have hedgies been trading National Presto Industries Inc. (NYSE:NPK)?
At Q3's end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in NPK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of National Presto Industries Inc. (NYSE:NPK), with a stake worth $44.9 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $12.4 million. Citadel Investment Group, Winton Capital Management, and Millennium Management 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 Royce & Associates allocated the biggest weight to National Presto Industries Inc. (NYSE:NPK), around 0.42% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to NPK.
Due to the fact that National Presto Industries Inc. (NYSE:NPK) has faced a decline in interest from hedge fund managers, logic holds that there is a sect of money managers who sold off their positions entirely heading into Q4. At the top of the heap, David E. Shaw's D E Shaw dumped the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $1.5 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also sold off its stock, about $0.7 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as National Presto Industries Inc. (NYSE:NPK) but similarly valued. These stocks are TechTarget Inc (NASDAQ:TTGT), Nicolet Bankshares Inc. (NASDAQ:NCBS), Jumia Technologies AG (NYSE:JMIA), and Altisource Residential Corporation (NYSE:RESI). This group of stocks' market caps are similar to NPK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TTGT,14,59178,-2 NCBS,5,9496,1 JMIA,6,2284,-2 RESI,15,34064,4 Average,10,26256,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $70 million in NPK's case. Altisource Residential Corporation (NYSE:RESI) is the most popular stock in this table. On the other hand Nicolet Bankshares Inc. (NASDAQ:NCBS) is the least popular one with only 5 bullish hedge fund positions. National Presto Industries Inc. (NYSE:NPK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NPK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NPK investors were disappointed as the stock returned -0.1% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.