We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards National Presto Industries Inc. (NYSE:NPK).
Hedge fund interest in National Presto Industries Inc. (NYSE:NPK) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Solar Capital Ltd. (NASDAQ:SLRC), Regis Corporation (NYSE:RGS), and Seacor Holdings, Inc. (NYSE:CKH) to gather more data points.
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' 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 18 percentage points since May 2014 through December 3, 2018 (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.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's view the new hedge fund action regarding National Presto Industries Inc. (NYSE:NPK).
How are hedge funds trading National Presto Industries Inc. (NYSE:NPK)?
Heading into the fourth quarter of 2018, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, representing no change from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in NPK heading into this year. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in National Presto Industries Inc. (NYSE:NPK) was held by Royce & Associates, which reported holding $74.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $9.7 million position. Other investors bullish on the company included Citadel Investment Group, Two Sigma Advisors, and AQR Capital Management.
Due to the fact that National Presto Industries Inc. (NYSE:NPK) has faced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of funds who sold off their positions entirely heading into Q3. Intriguingly, Michael Price's MFP Investors dumped the biggest position of the "upper crust" of funds watched by Insider Monkey, totaling about $0.3 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also dumped its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to National Presto Industries Inc. (NYSE:NPK). These stocks are Solar Capital Ltd. (NASDAQ:SLRC), Regis Corporation (NYSE:RGS), Seacor Holdings, Inc. (NYSE:CKH), and Inspire Medical Systems, Inc. (NYSE:INSP). This group of stocks' market values match NPK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLRC,11,57724,0 RGS,15,138608,1 CKH,19,149477,1 INSP,13,173882,0 Average,14.5,129923,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $101 million in NPK's case. Seacor Holdings, Inc. (NYSE:CKH) is the most popular stock in this table. On the other hand Solar Capital Ltd. (NASDAQ:SLRC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks National Presto Industries Inc. (NYSE:NPK) is even less popular than SLRC. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.