Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Natural Gas Services Group, Inc. (NYSE:NGS)? The smart money sentiment can provide an answer to this question.
Is NGS a good stock to buy now? Investors who are in the know were becoming hopeful. The number of bullish hedge fund positions moved up by 1 recently. Natural Gas Services Group, Inc. (NYSE:NGS) was in 11 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. Our calculations also showed that NGS 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). There were 10 hedge funds in our database with NGS positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Fred DiSanto Ancora Advisors
Fred DiSanto of Ancora Advisors
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. With all of this in mind let's take a gander at the recent hedge fund action encompassing Natural Gas Services Group, Inc. (NYSE:NGS).
Do Hedge Funds Think NGS Is A Good Stock To Buy Now?
At third quarter's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2020. By comparison, 12 hedge funds held shares or bullish call options in NGS a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Natural Gas Services Group, Inc. (NYSE:NGS), worth close to $6.1 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Royce & Associates, led by Chuck Royce, holding a $4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Touk Sinantha's AltraVue Capital, John Overdeck and David Siegel's Two Sigma Advisors and Frederick DiSanto's Ancora Advisors. In terms of the portfolio weights assigned to each position AltraVue Capital allocated the biggest weight to Natural Gas Services Group, Inc. (NYSE:NGS), around 1.42% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to NGS.
Now, key money managers have been driving this bullishness. Ancora Advisors, managed by Frederick DiSanto, initiated the most outsized position in Natural Gas Services Group, Inc. (NYSE:NGS). Ancora Advisors had $0.3 million invested in the company at the end of the quarter. Peter Algert's Algert Global also initiated a $0.1 million position during the quarter. The only other fund with a brand new NGS position is Thomas Bailard's Bailard Inc.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Natural Gas Services Group, Inc. (NYSE:NGS) but similarly valued. These stocks are Mistras Group, Inc. (NYSE:MG), StoneMor Inc. (NYSE:STON), Community Bankers Trust Corp. (NASDAQ:ESXB), HC2 Holdings Inc (NYSE:HCHC), 9 Meters Biopharma, Inc. (NASDAQ:NMTR), Ferroglobe PLC (NASDAQ:GSM), and MTBC, Inc. (NASDAQ:MTBC). This group of stocks' market values resemble NGS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MG,12,9811,1 STON,3,78903,-1 ESXB,4,8673,-2 HCHC,11,3880,-1 NMTR,5,21738,2 GSM,9,11679,-2 MTBC,4,7636,-2 Average,6.9,20331,-0.7 [/table]
As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $14 million in NGS's case. Mistras Group, Inc. (NYSE:MG) is the most popular stock in this table. On the other hand StoneMor Inc. (NYSE:STON) is the least popular one with only 3 bullish hedge fund positions. Natural Gas Services Group, Inc. (NYSE:NGS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NGS is 77.9. 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 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 still beat the market by 16.2 percentage points. Hedge funds were also right about betting on NGS as the stock returned 40.8% since the end of Q3 (through 12/8) 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.
