Here’s What Hedge Funds Think About Nordstrom, Inc. (JWN)

Nina Todic

Wed, Jun 19, 2019, 6:11 PM

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Nordstrom, Inc. (NYSE:JWN).

Nordstrom, Inc. (NYSE:JWN) has seen an increase in enthusiasm from smart money in recent months. JWN was in 26 hedge funds' portfolios at the end of March. There were 23 hedge funds in our database with JWN holdings at the end of the previous quarter. Our calculations also showed that jwn isn't among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

We're going to take a look at the latest hedge fund action surrounding Nordstrom, Inc. (NYSE:JWN).

What have hedge funds been doing with Nordstrom, Inc. (NYSE:JWN)?

At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in JWN over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Nordstrom, Inc. (NYSE:JWN) was held by Renaissance Technologies, which reported holding $57.9 million worth of stock at the end of March. It was followed by D E Shaw with a $47 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Ariel Investments.

As industrywide interest jumped, specific money managers have jumped into Nordstrom, Inc. (NYSE:JWN) headfirst. Renaissance Technologies, managed by Jim Simons, established the most outsized position in Nordstrom, Inc. (NYSE:JWN). Renaissance Technologies had $57.9 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $5.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh's Alyeska Investment Group, Jeffrey Talpins's Element Capital Management, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Nordstrom, Inc. (NYSE:JWN) but similarly valued. These stocks are Nutanix, Inc. (NASDAQ:NTNX), Foot Locker, Inc. (NYSE:FL), KAR Auction Services Inc (NYSE:KAR), and YY Inc (NASDAQ:YY). This group of stocks' market valuations match JWN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTNX,36,456099,-1 FL,35,956263,0 KAR,42,1234048,8 YY,20,129700,-4 Average,33.25,694028,0.75 [/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 $694 million. That figure was $283 million in JWN's case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand YY Inc (NASDAQ:YY) is the least popular one with only 20 bullish hedge fund positions. Nordstrom, Inc. (NYSE:JWN) is not the least popular stock in this group but hedge fund interest is still below average. 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately JWN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); JWN investors were disappointed as the stock returned -26.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

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

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