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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards NCR Corporation (NYSE:NCR).
Is NCR Corporation (NYSE:NCR) a bargain? Hedge funds are in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 2 in recent months. Our calculations also showed that NCR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a gander at the key hedge fund action encompassing NCR Corporation (NYSE:NCR).
What does smart money think about NCR Corporation (NYSE:NCR)?
At Q4's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in NCR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NCR Corporation (NYSE:NCR) was held by Nitorum Capital, which reported holding $61 million worth of stock at the end of September. It was followed by D E Shaw with a $47.8 million position. Other investors bullish on the company included GLG Partners, Engaged Capital, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position AREX Capital Management allocated the biggest weight to NCR Corporation (NYSE:NCR), around 6.22% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, earmarking 4.08 percent of its 13F equity portfolio to NCR.
Seeing as NCR Corporation (NYSE:NCR) has faced bearish sentiment from the smart money, it's safe to say that there exists a select few hedgies who were dropping their full holdings in the third quarter. Interestingly, Ravee Mehta's Nishkama Capital dropped the largest position of the 750 funds watched by Insider Monkey, valued at close to $19.4 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro's fund, Shellback Capital, also cut its stock, about $8.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to NCR Corporation (NYSE:NCR). These stocks are Cushman & Wakefield plc (NYSE:CWK), China Biologic Products Inc (NASDAQ:CBPO), Healthcare Realty Trust Inc (NYSE:HR), and Pure Storage, Inc. (NYSE:PSTG). This group of stocks' market valuations are similar to NCR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWK,18,216049,8 CBPO,19,562285,1 HR,12,51401,-1 PSTG,29,469978,-6 Average,19.5,324928,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $290 million in NCR's case. Pure Storage, Inc. (NYSE:PSTG) is the most popular stock in this table. On the other hand Healthcare Realty Trust Inc (NYSE:HR) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately NCR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NCR were disappointed as the stock returned -53.1% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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.