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At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Northwest Natural Holding Company (NYSE:NWN) makes for a good investment right now.
Is NWN a good stock to buy now? Northwest Natural Holding Company (NYSE:NWN) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that NWN 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). 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 Belden Inc. (NYSE:BDC), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), and PROS Holdings, Inc. (NYSE:PRO) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we're going to take a look at the new hedge fund action encompassing Northwest Natural Holding Company (NYSE:NWN).
Do Hedge Funds Think NWN Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NWN over the last 21 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Northwest Natural Holding Company (NYSE:NWN), with a stake worth $9.1 million reported as of the end of September. Trailing Fisher Asset Management was GAMCO Investors, which amassed a stake valued at $1.5 million. Two Sigma Advisors, Tudor Investment Corp, and Marshall Wace LLP 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 Quantinno Capital allocated the biggest weight to Northwest Natural Holding Company (NYSE:NWN), around 0.18% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to NWN.
Seeing as Northwest Natural Holding Company (NYSE:NWN) has experienced bearish sentiment from the smart money, it's safe to say that there lies a certain "tier" of funds who were dropping their full holdings heading into Q4. Interestingly, David Harding's Winton Capital Management dropped the biggest position of the "upper crust" of funds monitored by Insider Monkey, totaling about $1.9 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also dumped its stock, about $0.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Northwest Natural Holding Company (NYSE:NWN) but similarly valued. These stocks are Belden Inc. (NYSE:BDC), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), PROS Holdings, Inc. (NYSE:PRO), Super Micro Computer, Inc. (NASDAQ:SMCI), Kontoor Brands, Inc. (NASDAQ:KTB), Horace Mann Educators Corporation (NYSE:HMN), and The Geo Group, Inc. (NYSE:GEO). This group of stocks' market valuations resemble NWN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BDC,16,108567,-3 KLIC,24,200684,-8 PRO,19,195224,0 SMCI,19,423049,-3 KTB,18,81103,0 HMN,13,18160,7 GEO,12,65539,-8 Average,17.3,156047,-2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $18 million in NWN's case. Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) is the most popular stock in this table. On the other hand The Geo Group, Inc. (NYSE:GEO) is the least popular one with only 12 bullish hedge fund positions. Northwest Natural Holding Company (NYSE:NWN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NWN is 36.7. 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. This is a slightly negative signal and 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 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately NWN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NWN investors were disappointed as the stock returned 6.2% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.