A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on NOW Inc (NYSE:DNOW).
Hedge fund interest in NOW Inc (NYSE:DNOW) 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 Methode Electronics Inc. (NYSE:MEI), Saul Centers Inc (NYSE:BFS), and Air Transport Services Group Inc. (NASDAQ:ATSG) to gather more data points. Our calculations also showed that DNOW 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.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's go over the key hedge fund action regarding NOW Inc (NYSE:DNOW).
How are hedge funds trading NOW Inc (NYSE:DNOW)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in DNOW a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in NOW Inc (NYSE:DNOW), which was worth $24 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $14.1 million worth of shares. Cove Street Capital, Marshall Wace, and AQR Capital Management 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 Cove Street Capital allocated the biggest weight to NOW Inc (NYSE:DNOW), around 1.61% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to DNOW.
Due to the fact that NOW Inc (NYSE:DNOW) has witnessed a decline in interest from hedge fund managers, we can see that there lies a certain "tier" of hedge funds that elected to cut their positions entirely in the third quarter. Intriguingly, Ken Griffin's Citadel Investment Group said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $0.5 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dropped about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NOW Inc (NYSE:DNOW) but similarly valued. These stocks are Methode Electronics Inc. (NYSE:MEI), Saul Centers Inc (NYSE:BFS), Air Transport Services Group Inc. (NASDAQ:ATSG), and Materion Corporation (NYSE:MTRN). This group of stocks' market caps match DNOW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MEI,11,108516,3 BFS,12,43790,3 ATSG,17,158207,2 MTRN,17,107442,2 Average,14.25,104489,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $66 million in DNOW's case. Air Transport Services Group Inc. (NASDAQ:ATSG) is the most popular stock in this table. On the other hand Methode Electronics Inc. (NYSE:MEI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks NOW Inc (NYSE:DNOW) is even less popular than MEI. Hedge funds dodged a bullet by taking a bearish stance towards DNOW. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DNOW wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DNOW investors were disappointed as the stock returned -2.3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.