We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. That's a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Nokia Corporation (NYSE:NOK) a marvelous stock to buy now? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund positions shrunk by 2 in recent months. Our calculations also showed that NOK isn't among the 30 most popular stocks among hedge funds (see the video below). NOK was in 24 hedge funds' portfolios at the end of June. There were 26 hedge funds in our database with NOK holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the key hedge fund action encompassing Nokia Corporation (NYSE:NOK).
What does smart money think about Nokia Corporation (NYSE:NOK)?
At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in NOK a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Nokia Corporation (NYSE:NOK) was held by Ariel Investments, which reported holding $110.8 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $92.6 million position. Other investors bullish on the company included Cavalry Asset Management, Point72 Asset Management, and Millennium Management.
Since Nokia Corporation (NYSE:NOK) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers that decided to sell off their entire stakes by the end of the second quarter. It's worth mentioning that Andrew Sandler's Sandler Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $11.5 million in stock. Ross Margolies's fund, Stelliam Investment Management, also dumped its stock, about $8.3 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Nokia Corporation (NYSE:NOK). These stocks are Lam Research Corporation (NASDAQ:LRCX), Republic Services, Inc. (NYSE:RSG), NXP Semiconductors NV (NASDAQ:NXPI), and Southwest Airlines Co. (NYSE:LUV). This group of stocks' market values are closest to NOK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LRCX,35,1298891,3 RSG,24,635236,-6 NXPI,60,3941899,8 LUV,33,3399759,-2 Average,38,2318946,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $2319 million. That figure was $316 million in NOK's case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Republic Services, Inc. (NYSE:RSG) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Nokia Corporation (NYSE:NOK) is even less popular than RSG. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on NOK, though not to the same extent, as the stock returned 2% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.