Hedge Funds Have Never Been This Bullish On Norfolk Southern Corporation (NSC)

Nina Todic

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Is Norfolk Southern Corporation (NYSE:NSC) ready to rally soon? Investors who are in the know are betting on the stock. The number of long hedge fund bets went up by 7 lately. Our calculations also showed that NSC isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action encompassing Norfolk Southern Corporation (NYSE:NSC).

What have hedge funds been doing with Norfolk Southern Corporation (NYSE:NSC)?

At Q2's end, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 42 hedge funds with a bullish position in NSC a year ago. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

No of Hedge Funds with NSC Positions

The largest stake in Norfolk Southern Corporation (NYSE:NSC) was held by Citadel Investment Group, which reported holding $277.4 million worth of stock at the end of March. It was followed by Soroban Capital Partners with a $247.7 million position. Other investors bullish on the company included Palestra Capital Management, Impala Asset Management, and Balyasny Asset Management.

With a general bullishness amongst the heavyweights, some big names have jumped into Norfolk Southern Corporation (NYSE:NSC) headfirst. Renaissance Technologies, founded by Jim Simons, assembled the biggest position in Norfolk Southern Corporation (NYSE:NSC). Renaissance Technologies had $64.6 million invested in the company at the end of the quarter. Principal Global Investors's Columbus Circle Investors also initiated a $41.7 million position during the quarter. The following funds were also among the new NSC investors: Steve Cohen's Point72 Asset Management, Guy Shahar's DSAM Partners, and Israel Englander's Millennium Management.

Let's go over hedge fund activity in other stocks similar to Norfolk Southern Corporation (NYSE:NSC). These stocks are General Dynamics Corporation (NYSE:GD), Deere & Company (NYSE:DE), Marsh & McLennan Companies, Inc. (NYSE:MMC), and Prologis Inc (NYSE:PLD). This group of stocks' market caps are closest to NSC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GD,40,7211925,-2 DE,40,1582854,9 MMC,29,741920,0 PLD,24,457047,-1 Average,33.25,2498437,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $2498 million. That figure was $2126 million in NSC's case. General Dynamics Corporation (NYSE:GD) is the most popular stock in this table. On the other hand Prologis Inc (NYSE:PLD) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Norfolk Southern Corporation (NYSE:NSC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NSC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NSC were disappointed as the stock returned -9.4% during the third quarter 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 in Q3. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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