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Hedge Funds Picked The Wrong Time To Bet On Envista Holdings Corporation (NVST)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Envista Holdings Corporation (NYSE:NVST).

Envista Holdings Corporation (NYSE:NVST) has seen an increase in enthusiasm from smart money in recent months. NVST was in 42 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 21 hedge funds in our database with NVST positions at the end of the previous quarter. Our calculations also showed that NVST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ricky Sandler of Eminence Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s view the key hedge fund action encompassing Envista Holdings Corporation (NYSE:NVST).

Hedge fund activity in Envista Holdings Corporation (NYSE:NVST)

At the end of the fourth quarter, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in NVST a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the number one position in Envista Holdings Corporation (NYSE:NVST), worth close to $149.3 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Eminence Capital, managed by Ricky Sandler, which holds a $90 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish encompass Arthur B Cohen and Joseph Healey’s Healthcor Management LP, Jeffrey Gates’s Gates Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Bodenholm Capital allocated the biggest weight to Envista Holdings Corporation (NYSE:NVST), around 32.24% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 4.68 percent of its 13F equity portfolio to NVST.

Consequently, some big names have jumped into Envista Holdings Corporation (NYSE:NVST) headfirst. Eminence Capital, managed by Ricky Sandler, established the most outsized position in Envista Holdings Corporation (NYSE:NVST). Eminence Capital had $90 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $69.5 million investment in the stock during the quarter. The following funds were also among the new NVST investors: Doug Silverman and Alexander Klabin’s Senator Investment Group, James Dinan’s York Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now review hedge fund activity in other stocks similar to Envista Holdings Corporation (NYSE:NVST). These stocks are Tetra Tech, Inc. (NASDAQ:TTEK), Mattel, Inc. (NASDAQ:MAT), Wyndham Destinations, Inc. (NYSE:WYND), and Micro Focus Intl PLC (NYSE:MFGP). This group of stocks’ market valuations are similar to NVST’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTEK 23 103073 2
MAT 19 738702 -5
WYND 28 394113 5
MFGP 11 36197 3
Average 20.25 318021 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $1281 million in NVST’s case. Wyndham Destinations, Inc. (NYSE:WYND) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Envista Holdings Corporation (NYSE:NVST) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately NVST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NVST were disappointed as the stock returned -32.1% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.

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

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