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Nautilus, Inc. (NLS) Fell Out Of Favor With Hedge Funds?

·6 min read

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, 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 Nautilus, Inc. (NYSE:NLS).

Hedge fund interest in Nautilus, Inc. (NYSE:NLS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that NLS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 Plymouth Industrial REIT, Inc. (NYSE:PLYM), Dorchester Minerals LP (NASDAQ:DMLP), and Oyster Point Pharma, Inc. (NASDAQ:OYST) 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Xiniya Earnings Call Transcript XNY 2014 Q3
Xiniya Earnings Call Transcript XNY 2014 Q3

New York Stock Exchange

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a look at the latest hedge fund action regarding Nautilus, Inc. (NYSE:NLS).

Do Hedge Funds Think NLS Is A Good Stock To Buy Now?

At the end of March, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NLS over the last 23 quarters. 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 Nautilus, Inc. (NYSE:NLS) was held by Scopus Asset Management, which reported holding $11.7 million worth of stock at the end of December. It was followed by Skylands Capital with a $11.5 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Impala Asset Management. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to Nautilus, Inc. (NYSE:NLS), around 1.47% of its 13F portfolio. Osmium Partners is also relatively very bullish on the stock, setting aside 1.05 percent of its 13F equity portfolio to NLS.

Because Nautilus, Inc. (NYSE:NLS) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there were a few funds who were dropping their positions entirely heading into Q2. At the top of the heap, Orin Hirschman's AIGH Investment Partners dumped the biggest stake of all the hedgies watched by Insider Monkey, comprising an estimated $11.8 million in stock. Josh Goldberg's fund, G2 Investment Partners Management, also dropped its stock, about $2.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Nautilus, Inc. (NYSE:NLS) but similarly valued. These stocks are Plymouth Industrial REIT, Inc. (NYSE:PLYM), Dorchester Minerals LP (NASDAQ:DMLP), Oyster Point Pharma, Inc. (NASDAQ:OYST), Farmers National Banc Corp (NASDAQ:FMNB), Caesarstone Ltd (NASDAQ:CSTE), Quantum Corporation (NASDAQ:QMCO), and 89bio, Inc. (NASDAQ:ETNB). This group of stocks' market valuations resemble NLS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLYM,8,25611,-3 DMLP,3,20630,-2 OYST,9,9918,2 FMNB,10,11933,2 CSTE,15,51378,5 QMCO,14,51543,5 ETNB,13,237711,-5 Average,10.3,58389,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.3 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $46 million in NLS's case. Caesarstone Ltd (NASDAQ:CSTE) is the most popular stock in this table. On the other hand Dorchester Minerals LP (NASDAQ:DMLP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Nautilus, Inc. (NYSE:NLS) is more popular among hedge funds. Our overall hedge fund sentiment score for NLS is 77.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Unfortunately NLS wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NLS were disappointed as the stock returned -10.2% since the end of the first quarter (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.