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Is Norfolk Southern (NSC) Stock A Buy or Sell?

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Abigail Fisher
·5 min read
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With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Norfolk Southern Corp. (NYSE:NSC).

Is NSC stock a buy or sell? Money managers were reducing their bets on the stock. The number of long hedge fund positions retreated by 3 lately. Norfolk Southern Corp. (NYSE:NSC) was in 44 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 54. Our calculations also showed that NSC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. 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 (or at the end of this article). With all of this in mind we're going to take a gander at the fresh hedge fund action encompassing Norfolk Southern Corp. (NYSE:NSC).

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

At Q4's end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the third quarter of 2020. By comparison, 52 hedge funds held shares or bullish call options in NSC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Norfolk Southern Corp. (NYSE:NSC), which was worth $136 million at the end of the fourth quarter. On the second spot was Adage Capital Management which amassed $105.2 million worth of shares. Markel Gayner Asset Management, Lansdowne Partners, and GLG Partners 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 Alight Capital allocated the biggest weight to Norfolk Southern Corp. (NYSE:NSC), around 3.22% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, dishing out 3.02 percent of its 13F equity portfolio to NSC.

Due to the fact that Norfolk Southern Corp. (NYSE:NSC) has witnessed bearish sentiment from the smart money, it's safe to say that there lies a certain "tier" of fund managers that decided to sell off their full holdings heading into Q1. Interestingly, Jack Woodruff's Candlestick Capital Management sold off the largest stake of the 750 funds followed by Insider Monkey, comprising about $37.4 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dropped its stock, about $25.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q1.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Norfolk Southern Corp. (NYSE:NSC) but similarly valued. We will take a look at Spotify Technology S.A. (NYSE:SPOT), General Motors Company (NYSE:GM), Marsh & McLennan Companies, Inc. (NYSE:MMC), VMware, Inc. (NYSE:VMW), Atlassian Corporation Plc (NASDAQ:TEAM), The Progressive Corporation (NYSE:PGR), and Ferrari N.V. (NYSE:RACE). This group of stocks' market caps are similar to NSC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPOT,48,2688846,4 GM,70,6332871,10 MMC,43,1747012,8 VMW,35,405815,4 TEAM,69,4932963,21 PGR,48,1744884,1 RACE,29,1527088,-2 Average,48.9,2768497,6.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.9 hedge funds with bullish positions and the average amount invested in these stocks was $2768 million. That figure was $784 million in NSC's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Ferrari N.V. (NYSE:RACE) is the least popular one with only 29 bullish hedge fund positions. Norfolk Southern Corp. (NYSE:NSC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NSC is 44.7. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on NSC as the stock returned 10.1% since the end of the fourth quarter (through 3/19) and outperformed the market by an even larger margin.

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

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