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 North American Construction Group Ltd. (NYSE:NOA) and determine whether hedge funds had an edge regarding this stock.
North American Construction Group Ltd. (NYSE:NOA) was in 11 hedge funds' portfolios at the end of the first quarter of 2020. NOA investors should be aware of an increase in enthusiasm from smart money lately. There were 10 hedge funds in our database with NOA positions at the end of the previous quarter. Our calculations also showed that NOA 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.
In the 21st century investor’s toolkit there are a multitude of methods stock traders can use to analyze stocks. Two of the best methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can outclass their index-focused peers by a very impressive margin (see the details here).
[caption id="attachment_26255" align="aligncenter" width="400"] Louis Navellier of Navellier & Associates[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a glance at the key hedge fund action encompassing North American Construction Group Ltd. (NYSE:NOA).
How have hedgies been trading North American Construction Group Ltd. (NYSE:NOA)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in NOA a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Cannell Capital held the most valuable stake in North American Construction Group Ltd. (NYSE:NOA), which was worth $13.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.8 million worth of shares. Marshall Wace LLP, Arrowstreet Capital, and Springbok Capital 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 Cannell Capital allocated the biggest weight to North American Construction Group Ltd. (NYSE:NOA), around 5.62% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to NOA.
Consequently, key hedge funds were leading the bulls' herd. PDT Partners, managed by Peter Muller, established the most valuable position in North American Construction Group Ltd. (NYSE:NOA). PDT Partners had $0.1 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $0.1 million position during the quarter. The only other fund with a brand new NOA position is Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as North American Construction Group Ltd. (NYSE:NOA) but similarly valued. These stocks are Akazoo S.A. (NASDAQ:SONG), FNCB Bancorp Inc. (NASDAQ:FNCB), Genesis Healthcare Inc (NYSE:GEN), and Vera Bradley, Inc. (NASDAQ:VRA). This group of stocks' market valuations are closest to NOA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SONG,7,3254,0 FNCB,2,164,1 GEN,4,8700,1 VRA,18,14827,0 Average,7.75,6736,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $20 million in NOA's case. Vera Bradley, Inc. (NASDAQ:VRA) is the most popular stock in this table. On the other hand FNCB Bancorp Inc. (NASDAQ:FNCB) is the least popular one with only 2 bullish hedge fund positions. North American Construction Group Ltd. (NYSE:NOA) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on NOA, though not to the same extent, as the stock returned 23.8% during the second quarter and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.