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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded NorthWestern Corporation (NYSE:NWE) based on those filings.
Is NorthWestern Corporation (NYSE:NWE) a bargain? The smart money is betting on the stock. The number of bullish hedge fund positions rose by 2 recently. Our calculations also showed that NWE 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). NWE was in 19 hedge funds' portfolios at the end of December. There were 17 hedge funds in our database with NWE holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that 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 Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 let's take a look at the latest hedge fund action surrounding NorthWestern Corporation (NYSE:NWE).
What have hedge funds been doing with NorthWestern Corporation (NYSE:NWE)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the third quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in NWE a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in NorthWestern Corporation (NYSE:NWE), which was worth $96.2 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $20 million worth of shares. GLG Partners, Millennium Management, and ExodusPoint 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 Quantinno Capital allocated the biggest weight to NorthWestern Corporation (NYSE:NWE), around 0.16% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to NWE.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into NorthWestern Corporation (NYSE:NWE) headfirst. ExodusPoint Capital, managed by Michael Gelband, initiated the most outsized position in NorthWestern Corporation (NYSE:NWE). ExodusPoint Capital had $6.2 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $1.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe's Voleon Capital, Karim Abbadi and Edward McBride's Centiva Capital, and Hoon Kim's Quantinno Capital.
Let's go over hedge fund activity in other stocks similar to NorthWestern Corporation (NYSE:NWE). These stocks are Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), The Descartes Systems Group Inc (NASDAQ:DSGX), Embraer SA (NYSE:ERJ), and National Health Investors Inc (NYSE:NHI). All of these stocks' market caps are similar to NWE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AJRD,21,436849,0 DSGX,12,97098,-2 ERJ,14,170112,-1 NHI,15,143101,-2 Average,15.5,211790,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $167 million in NWE's case. Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) is the most popular stock in this table. On the other hand The Descartes Systems Group Inc (NASDAQ:DSGX) is the least popular one with only 12 bullish hedge fund positions. NorthWestern Corporation (NYSE:NWE) 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. 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 but beat the market by 5.5 percentage points. Unfortunately NWE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NWE were disappointed as the stock returned -24.9% during the same time period 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 many of these stocks already outperformed the market so far this year.
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.