The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at The New York Times Company (NYSE:NYT) from the perspective of those elite funds.
Is The New York Times Company (NYSE:NYT) an exceptional investment right now? Hedge funds are betting on the stock. The number of bullish hedge fund bets went up by 9 lately. Our calculations also showed that NYT 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 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the recent hedge fund action encompassing The New York Times Company (NYSE:NYT).
What does smart money think about The New York Times Company (NYSE:NYT)?
At Q2's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in NYT a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Darsana Capital Partners was the largest shareholder of The New York Times Company (NYSE:NYT), with a stake worth $247.6 million reported as of the end of March. Trailing Darsana Capital Partners was OZ Management, which amassed a stake valued at $165.5 million. Renaissance Technologies, SoMa Equity Partners, and Slate Path Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Weiss Asset Management, managed by Andrew Weiss, established the biggest position in The New York Times Company (NYSE:NYT). Weiss Asset Management had $37.2 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $23.6 million position during the quarter. The other funds with new positions in the stock are Joe DiMenna's ZWEIG DIMENNA PARTNERS, Irving Kahn's Kahn Brothers, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's go over hedge fund activity in other stocks similar to The New York Times Company (NYSE:NYT). These stocks are Harley-Davidson, Inc. (NYSE:HOG), Healthcare Trust Of America Inc (NYSE:HTA), The Howard Hughes Corporation (NYSE:HHC), and Allison Transmission Holdings Inc (NYSE:ALSN). All of these stocks' market caps match NYT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOG,14,49999,-2 HTA,13,405532,-6 HHC,26,551404,4 ALSN,25,894810,-3 Average,19.5,475436,-1.75 [/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 $475 million. That figure was $1279 million in NYT's case. The Howard Hughes Corporation (NYSE:HHC) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks The New York Times Company (NYSE:NYT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NYT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NYT were disappointed as the stock returned -12.6% during the third 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 (see the video below) among hedge funds as many of these stocks already outperformed the market in Q3. 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.