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Was The Smart Money Right About NXP Semiconductors NV (NXPI)?

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·6 min read
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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about NXP Semiconductors NV (NASDAQ:NXPI).

NXP Semiconductors NV (NASDAQ:NXPI) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. NXP Semiconductors NV (NASDAQ:NXPI) was in 66 hedge funds' portfolios at the end of December. The all time high for this statistic is 93. There were 68 hedge funds in our database with NXPI holdings at the end of September. Our calculations also showed that NXPI 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).

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind let's take a look at the recent hedge fund action encompassing NXP Semiconductors NV (NASDAQ:NXPI).

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

Heading into the first quarter of 2021, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in NXPI over the last 22 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in NXP Semiconductors NV (NASDAQ:NXPI) was held by Whale Rock Capital Management, which reported holding $430.4 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $244.1 million position. Other investors bullish on the company included Fisher Asset Management, First Pacific Advisors LLC, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Engine No. 1 LLC allocated the biggest weight to NXP Semiconductors NV (NASDAQ:NXPI), around 9.93% of its 13F portfolio. Mountain Road Advisors is also relatively very bullish on the stock, dishing out 7.89 percent of its 13F equity portfolio to NXPI.

Due to the fact that NXP Semiconductors NV (NASDAQ:NXPI) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds who sold off their full holdings last quarter. Interestingly, Zach Schreiber's Point State Capital cut the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at close to $57 million in stock, and Anand Parekh's Alyeska Investment Group was right behind this move, as the fund cut about $56.6 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let's check out hedge fund activity in other stocks similar to NXP Semiconductors NV (NASDAQ:NXPI). These stocks are Peloton Interactive, Inc. (NASDAQ:PTON), Vodafone Group Plc (NASDAQ:VOD), Palantir Technologies Inc. (NYSE:PLTR), Cognizant Technology Solutions Corp (NASDAQ:CTSH), Ross Stores, Inc. (NASDAQ:ROST), Twitter Inc (NYSE:TWTR), and TAL Education Group (NYSE:TAL). This group of stocks' market caps are similar to NXPI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTON,63,5666462,5 VOD,17,745457,-5 PLTR,38,1902514,7 CTSH,46,3517450,1 ROST,57,1308907,11 TWTR,78,2777387,3 TAL,29,1970456,-12 Average,46.9,2555519,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.9 hedge funds with bullish positions and the average amount invested in these stocks was $2556 million. That figure was $2260 million in NXPI's case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 17 bullish hedge fund positions. NXP Semiconductors NV (NASDAQ:NXPI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NXPI is 64.5. 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 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on NXPI as the stock returned 22.8% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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