How do we determine whether NACCO Industries, Inc. (NYSE:NC) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
NACCO Industries, Inc. (NYSE:NC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Global Medical REIT Inc. (NYSE:GMRE), Capital Southwest Corporation (NASDAQ:CSWC), and Arcus Biosciences, Inc. (NYSE:RCUS) to gather more data points. Our calculations also showed that NC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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. Let's take a gander at the key hedge fund action regarding NACCO Industries, Inc. (NYSE:NC).
What does smart money think about NACCO Industries, Inc. (NYSE:NC)?
At Q2's end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NC over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NACCO Industries, Inc. (NYSE:NC) was held by Renaissance Technologies, which reported holding $15.2 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $1 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Prescott Group Capital Management).
Let's also examine hedge fund activity in other stocks similar to NACCO Industries, Inc. (NYSE:NC). These stocks are Global Medical REIT Inc. (NYSE:GMRE), Capital Southwest Corporation (NASDAQ:CSWC), Arcus Biosciences, Inc. (NYSE:RCUS), and Oxford Immunotec Global PLC (NASDAQ:OXFD). This group of stocks' market caps are similar to NC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GMRE,13,16801,-3 CSWC,10,46735,3 RCUS,14,57735,6 OXFD,16,164660,-1 Average,13.25,71483,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $18 million in NC's case. Oxford Immunotec Global PLC (NASDAQ:OXFD) is the most popular stock in this table. On the other hand Capital Southwest Corporation (NASDAQ:CSWC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks NACCO Industries, Inc. (NYSE:NC) is even less popular than CSWC. Hedge funds clearly dropped the ball on NC as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on NC as the stock returned 23.5% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.