The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of NL Industries, Inc. (NYSE:NL).
Hedge fund interest in NL Industries, Inc. (NYSE:NL) 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 Monroe Capital Corp (NASDAQ:MRCC), Timkensteel Corp (NYSE:TMST), and StarTek, Inc. (NYSE:SRT) to gather more data points. Our calculations also showed that NL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 S&P 500 ETFs by more than 44 percentage points since March 2017 (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_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's go over the recent hedge fund action surrounding NL Industries, Inc. (NYSE:NL).
How have hedgies been trading NL Industries, Inc. (NYSE:NL)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NL over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of NL Industries, Inc. (NYSE:NL), with a stake worth $0.7 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $0.1 million. Bourgeon Capital was 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 Bourgeon Capital allocated the biggest weight to NL Industries, Inc. (NYSE:NL), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0006 percent of its 13F equity portfolio to NL.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Bourgeon Capital).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as NL Industries, Inc. (NYSE:NL) but similarly valued. These stocks are Monroe Capital Corp (NASDAQ:MRCC), Timkensteel Corp (NYSE:TMST), StarTek, Inc. (NYSE:SRT), and SWK Holdings Corporation (NASDAQ:SWKH). This group of stocks' market values match NL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRCC,4,2273,-1 TMST,11,8154,-1 SRT,4,3292,0 SWKH,4,116218,4 Average,5.75,32484,0.5 [/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 $32 million. That figure was $1 million in NL's case. Timkensteel Corp (NYSE:TMST) is the most popular stock in this table. On the other hand Monroe Capital Corp (NASDAQ:MRCC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks NL Industries, Inc. (NYSE:NL) is even less popular than MRCC. Hedge funds dodged a bullet by taking a bearish stance towards NL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately NL wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NL investors were disappointed as the stock returned -3.4% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.