Did Hedge Funds Make The Right Call On Nordson Corporation (NDSN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNordson Corporation (NASDAQ:NDSN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Nordson Corporation (NASDAQ:NDSN) was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. NDSN has seen a decrease in activity from the world’s largest hedge funds recently. There were 29 hedge funds in our database with NDSN holdings at the end of the previous quarter. Our calculations also showed that NDSN 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. 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 if you have any good ideas send us an email. Now we’re going to take a look at the latest hedge fund action regarding Nordson Corporation (NASDAQ:NDSN).

What does smart money think about Nordson Corporation (NASDAQ:NDSN)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the fourth quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in NDSN a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of Nordson Corporation (NASDAQ:NDSN), with a stake worth $15.8 million reported as of the end of September. Trailing Arrowstreet Capital was Balyasny Asset Management, which amassed a stake valued at $13 million. Royce & Associates, Citadel Investment Group, and Columbus Circle Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Nordson Corporation (NASDAQ:NDSN), around 2.34% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, earmarking 1.83 percent of its 13F equity portfolio to NDSN.

Because Nordson Corporation (NASDAQ:NDSN) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their full holdings last quarter. At the top of the heap, Renaissance Technologies sold off the largest position of the 750 funds monitored by Insider Monkey, worth close to $5.5 million in stock, and Qing Li’s Sciencast Management was right behind this move, as the fund cut about $1.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 7 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Nordson Corporation (NASDAQ:NDSN) but similarly valued. These stocks are Erie Indemnity Company (NASDAQ:ERIE), Apollo Global Management Inc (NYSE:APO), Globe Life Inc. (NYSE:GL), and RPM International Inc. (NYSE:RPM). This group of stocks’ market valuations resemble NDSN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERIE 17 63002 -3
APO 34 1487468 5
GL 22 574230 -1
RPM 22 191448 -9
Average 23.75 579037 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $579 million. That figure was $99 million in NDSN’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 17 bullish hedge fund positions. Nordson Corporation (NASDAQ:NDSN) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on NDSN as the stock returned 40.8% during the second quarter and outperformed the market by an even larger margin.

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