Is Navistar International Corp (NYSE:NAV) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Navistar International Corp (NYSE:NAV) has seen a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that NAV isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_25910" align="aligncenter" width="598"] Carl Icahn of Icahn Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the fresh hedge fund action surrounding Navistar International Corp (NYSE:NAV).
What does smart money think about Navistar International Corp (NYSE:NAV)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in NAV a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Icahn Capital was the largest shareholder of Navistar International Corp (NYSE:NAV), with a stake worth $470.3 million reported as of the end of September. Trailing Icahn Capital was MHR Fund Management, which amassed a stake valued at $456.1 million. GAMCO Investors, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MHR Fund Management allocated the biggest weight to Navistar International Corp (NYSE:NAV), around 38.64% of its 13F portfolio. Icahn Capital is also relatively very bullish on the stock, earmarking 1.83 percent of its 13F equity portfolio to NAV.
Judging by the fact that Navistar International Corp (NYSE:NAV) has witnessed a decline in interest from the smart money, we can see that there were a few fund managers that decided to sell off their positions entirely last quarter. It's worth mentioning that Mario Gabelli's GAMCO Investors sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $160.9 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund dropped about $23 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Navistar International Corp (NYSE:NAV) but similarly valued. We will take a look at Iridium Communications Inc. (NASDAQ:IRDM), MGE Energy, Inc. (NASDAQ:MGEE), GATX Corporation (NYSE:GATX), and Cathay General Bancorp (NASDAQ:CATY). This group of stocks' market caps resemble NAV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRDM,16,138343,4 MGEE,13,54289,0 GATX,15,214366,2 CATY,17,43998,5 Average,15.25,112749,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $1133 million in NAV's case. Cathay General Bancorp (NASDAQ:CATY) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Navistar International Corp (NYSE:NAV) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on NAV as the stock returned 16.2% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.