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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards NortonLifeLock Inc. (NASDAQ:NLOK).
NortonLifeLock Inc. (NASDAQ:NLOK) was in 34 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 46. NLOK shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. There were 37 hedge funds in our database with NLOK holdings at the end of June. Our calculations also showed that NLOK isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
Noam Gottesman of GLG Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to take a peek at the recent hedge fund action regarding NortonLifeLock Inc. (NASDAQ:NLOK).
Do Hedge Funds Think NLOK Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in NLOK over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NortonLifeLock Inc. (NASDAQ:NLOK) was held by Starboard Value LP, which reported holding $260.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $136.8 million position. Other investors bullish on the company included Park West Asset Management, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Totem Point Management allocated the biggest weight to NortonLifeLock Inc. (NASDAQ:NLOK), around 15.36% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, earmarking 7.72 percent of its 13F equity portfolio to NLOK.
Because NortonLifeLock Inc. (NASDAQ:NLOK) has faced declining sentiment from the smart money, it's safe to say that there was a specific group of funds that slashed their full holdings heading into Q4. It's worth mentioning that Frank Brosens's Taconic Capital cut the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $15.4 million in stock, and Kenneth Squire's 13D Management was right behind this move, as the fund sold off about $10.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NortonLifeLock Inc. (NASDAQ:NLOK) but similarly valued. We will take a look at LINE Corporation (NYSE:LN), Trimble Inc. (NASDAQ:TRMB), Generac Holdings Inc. (NYSE:GNRC), Ceridian HCM Holding Inc. (NYSE:CDAY), Waters Corporation (NYSE:WAT), Jacobs Engineering Group Inc. (NYSE:J), and Hewlett Packard Enterprise Company (NYSE:HPE). All of these stocks' market caps are closest to NLOK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LN,4,6364,-4 TRMB,35,1030261,9 GNRC,43,733948,7 CDAY,36,1809089,6 WAT,32,927887,-6 J,27,920744,-5 HPE,34,726468,3 Average,30.1,879252,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $879 million. That figure was $1048 million in NLOK's case. Generac Holdings Inc. (NYSE:GNRC) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 4 bullish hedge fund positions. NortonLifeLock Inc. (NASDAQ:NLOK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NLOK is 62.6. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately NLOK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NLOK were disappointed as the stock returned 2.6% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.