While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and optimism towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the first quarter and hedging or reducing many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Navigator Holdings Ltd (NYSE:NVGS).
Is Navigator Holdings Ltd (NYSE:NVGS) a bargain? Hedge funds are buying. The number of bullish hedge fund positions moved up by 1 in recent months. Our calculations also showed that NVGS 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.
We're going to review the recent hedge fund action regarding Navigator Holdings Ltd (NYSE:NVGS).
Hedge fund activity in Navigator Holdings Ltd (NYSE:NVGS)
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in NVGS over the last 15 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Navigator Holdings Ltd (NYSE:NVGS) was held by Invesco Private Capital (WL Ross), which reported holding $240.5 million worth of stock at the end of March. It was followed by Horizon Asset Management with a $16.1 million position. Other investors bullish on the company included Royce & Associates, Minerva Advisors, and Arrowstreet Capital.
As one would reasonably expect, key hedge funds have been driving this bullishness. Minerva Advisors, managed by David P. Cohen, assembled the largest position in Navigator Holdings Ltd (NYSE:NVGS). Minerva Advisors had $4.3 million invested in the company at the end of the quarter. Charles Frumberg's Emancipation Capital also made a $0.8 million investment in the stock during the quarter. The only other fund with a brand new NVGS position is Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Navigator Holdings Ltd (NYSE:NVGS). These stocks are Quad/Graphics, Inc. (NYSE:QUAD), Peoples Bancorp Inc. (NASDAQ:PEBO), LeMaitre Vascular Inc (NASDAQ:LMAT), and Exterran Corporation (NYSE:EXTN). This group of stocks' market caps match NVGS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QUAD,22,39329,2 PEBO,9,29859,1 LMAT,11,17414,5 EXTN,18,70361,3 Average,15,39241,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $280 million in NVGS's case. Quad/Graphics, Inc. (NYSE:QUAD) is the most popular stock in this table. On the other hand Peoples Bancorp Inc. (NASDAQ:PEBO) is the least popular one with only 9 bullish hedge fund positions. Navigator Holdings Ltd (NYSE:NVGS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately NVGS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NVGS investors were disappointed as the stock returned -11.7% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
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