Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze NN, Inc. (NASDAQ:NNBR) from the perspective of those elite funds.
Is NN, Inc. (NASDAQ:NNBR) going to take off soon? Hedge funds are turning bullish. The number of long hedge fund positions improved by 6 recently. Our calculations also showed that nnbr isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let's check out the new hedge fund action regarding NN, Inc. (NASDAQ:NNBR).
What have hedge funds been doing with NN, Inc. (NASDAQ:NNBR)?
At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the second quarter of 2018. By comparison, 10 hedge funds held shares or bullish call options in NNBR heading into this year. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce's Royce & Associates has the largest position in NN, Inc. (NASDAQ:NNBR), worth close to $21.9 million, corresponding to 0.2% of its total 13F portfolio. On Royce & Associates's heels is Park West Asset Management, led by Peter S. Park, holding a $16.7 million position; 0.6% of its 13F portfolio is allocated to the stock. Some other peers that are bullish comprise Ted White and Christopher Kiper's Legion Partners Asset Management, Michael M. Rothenberg's Moab Capital Partners and Douglas Dethy's DC Capital Partners.
Consequently, key money managers were breaking ground themselves. Park West Asset Management, managed by Peter S. Park, established the most outsized position in NN, Inc. (NASDAQ:NNBR). Park West Asset Management had $16.7 million invested in the company at the end of the quarter. Ted White and Christopher Kiper's Legion Partners Asset Management also initiated a $15.1 million position during the quarter. The other funds with new positions in the stock are Michael M. Rothenberg's Moab Capital Partners, Douglas Dethy's DC Capital Partners, and Jim Simons's Renaissance Technologies.
Let's now review hedge fund activity in other stocks similar to NN, Inc. (NASDAQ:NNBR). These stocks are Smart & Final Stores Inc (NYSE:SFS), CVR Partners LP (NYSE:UAN), The KeyW Holding Corporation (NASDAQ:KEYW), and Zafgen Inc (NASDAQ:ZFGN). This group of stocks' market valuations resemble NNBR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SFS,10,28338,-1 UAN,2,25692,0 KEYW,7,32603,-1 ZFGN,19,156827,1 Average,9.5,60865,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $76 million in NNBR's case. Zafgen Inc (NASDAQ:ZFGN) is the most popular stock in this table. On the other hand CVR Partners LP (NYSE:UAN) is the least popular one with only 2 bullish hedge fund positions. NN, Inc. (NASDAQ:NNBR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard ZFGN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.