Did Hedge Funds Make The Right Call On Nielsen Holdings plc (NLSN)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Nielsen Holdings plc (NYSE:NLSN) and determine whether hedge funds had an edge regarding this stock.

Is Nielsen Holdings plc (NYSE:NLSN) the right investment to pursue these days? The smart money was becoming hopeful. The number of bullish hedge fund positions moved up by 4 recently. Our calculations also showed that NLSN 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). NLSN was in 33 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with NLSN holdings at the end of the previous quarter.

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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the fresh hedge fund action regarding Nielsen Holdings plc (NYSE:NLSN).

How have hedgies been trading Nielsen Holdings plc (NYSE:NLSN)?

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in NLSN a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is NLSN A Good Stock To Buy?

The largest stake in Nielsen Holdings plc (NYSE:NLSN) was held by Windacre Partnership, which reported holding $355.1 million worth of stock at the end of September. It was followed by Elliott Management with a $208.2 million position. Other investors bullish on the company included Ariel Investments, HBK Investments, and HBK Investments. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Nielsen Holdings plc (NYSE:NLSN), around 15.84% of its 13F portfolio. Elliott Management is also relatively very bullish on the stock, earmarking 3.86 percent of its 13F equity portfolio to NLSN.

As aggregate interest increased, specific money managers were breaking ground themselves. HBK Investments, managed by David Costen Haley, assembled the most outsized position in Nielsen Holdings plc (NYSE:NLSN). HBK Investments had $12.5 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also made a $10.9 million investment in the stock during the quarter. The following funds were also among the new NLSN investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Eli Cohen’s Crescent Park Management, and Andrew Kurita’s Kettle Hill Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Nielsen Holdings plc (NYSE:NLSN). These stocks are MKS Instruments, Inc. (NASDAQ:MKSI), The Boston Beer Company Inc (NYSE:SAM), Berry Global Group Inc (NYSE:BERY), and PLDT Inc. (NYSE:PHI). This group of stocks’ market valuations match NLSN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MKSI 27 296258 -1
SAM 24 557916 -2
BERY 34 1206553 -13
PHI 7 74090 0
Average 23 533704 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $763 million in NLSN’s case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 7 bullish hedge fund positions. Nielsen Holdings plc (NYSE:NLSN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 but beat the market by 15.5 percentage points. Unfortunately NLSN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NLSN were disappointed as the stock returned 19% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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