Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like NVE Corporation (NASDAQ:NVEC).
NVE Corporation (NASDAQ:NVEC) was in 7 hedge funds' portfolios at the end of June. NVEC has seen an increase in enthusiasm from smart money recently. There were 4 hedge funds in our database with NVEC holdings at the end of the previous quarter. Our calculations also showed that NVEC 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We're going to analyze the latest hedge fund action encompassing NVE Corporation (NASDAQ:NVEC).
What have hedge funds been doing with NVE Corporation (NASDAQ:NVEC)?
Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in NVEC a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies holds the largest position in NVE Corporation (NASDAQ:NVEC). Renaissance Technologies has a $9.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is GLG Partners, led by Noam Gottesman, holding a $1.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism comprise Paul Marshall and Ian Wace's Marshall Wace LLP, Charles Paquelet's Skylands Capital and D. E. Shaw's D E Shaw.
As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the biggest position in NVE Corporation (NASDAQ:NVEC). Marshall Wace LLP had $1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is David Harding's Winton Capital Management.
Let's go over hedge fund activity in other stocks similar to NVE Corporation (NASDAQ:NVEC). These stocks are Summit Financial Group, Inc. (NASDAQ:SMMF), Teekay Tankers Ltd. (NYSE:TNK), DryShips Inc. (NASDAQ:DRYS), and Avid Bioservices, Inc. (NASDAQ:CDMO). This group of stocks' market valuations match NVEC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMMF,2,8578,0 TNK,12,24981,0 DRYS,2,619,-1 CDMO,7,32056,-2 Average,5.75,16559,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $14 million in NVEC's case. Teekay Tankers Ltd. (NYSE:TNK) is the most popular stock in this table. On the other hand Summit Financial Group, Inc. (NASDAQ:SMMF) is the least popular one with only 2 bullish hedge fund positions. NVE Corporation (NASDAQ:NVEC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NVEC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NVEC were disappointed as the stock returned -3.3% 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 among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.