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Did Hedge Funds Make The Right Call On Nevro Corp (NVRO) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Nevro Corp (NYSE:NVRO) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Nevro Corp (NYSE:NVRO) investors should pay attention to a decrease in hedge fund sentiment in recent months. NVRO was in 31 hedge funds’ portfolios at the end of March. There were 33 hedge funds in our database with NVRO positions at the end of the previous quarter. Our calculations also showed that NVRO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Joseph Edelman of Perceptive Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s take a glance at the recent hedge fund action surrounding Nevro Corp (NYSE:NVRO).

Hedge fund activity in Nevro Corp (NYSE:NVRO)

At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the fourth quarter of 2019. On the other hand, there were a total of 32 hedge funds with a bullish position in NVRO a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is NVRO A Good Stock To Buy?

The largest stake in Nevro Corp (NYSE:NVRO) was held by Healthcor Management LP, which reported holding $175.2 million worth of stock at the end of September. It was followed by D E Shaw with a $149.5 million position. Other investors bullish on the company included Perceptive Advisors, Redmile Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Healthcor Management LP allocated the biggest weight to Nevro Corp (NYSE:NVRO), around 7.49% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, dishing out 5.41 percent of its 13F equity portfolio to NVRO.

Because Nevro Corp (NYSE:NVRO) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their full holdings heading into Q4. It’s worth mentioning that Christopher James’s Partner Fund Management cut the biggest position of the 750 funds followed by Insider Monkey, totaling an estimated $67.8 million in stock, and Ben Gambill’s Tiger Eye Capital was right behind this move, as the fund sold off about $28 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Nevro Corp (NYSE:NVRO). We will take a look at B2Gold Corp (NYSE:BTG), Nektar Therapeutics (NASDAQ:NKTR), Balchem Corporation (NASDAQ:BCPC), and Sibanye Stillwater Limited (NYSE:SBSW). This group of stocks’ market valuations are similar to NVRO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BTG 19 228596 2
NKTR 17 198202 -9
BCPC 13 56015 1
SBSW 19 83948 6
Average 17 141690 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $694 million in NVRO’s case. B2Gold Corp (NYSE:BTG) is the most popular stock in this table. On the other hand Balchem Corporation (NASDAQ:BCPC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Nevro Corp (NYSE:NVRO) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately NVRO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NVRO were disappointed as the stock returned 19.5% during the second 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 10 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.