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 NANO-X IMAGING LTD (NASDAQ:NNOX).
Is Nano-X Imaging (NNOX) a good stock to buy now? Money managers were in an optimistic mood. The number of bullish hedge fund positions improved by 6 recently. NANO-X IMAGING LTD (NASDAQ:NNOX) was in 6 hedge funds’ portfolios at the end of September. Our calculations also showed that NNOX isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now we’re going to take a look at the latest hedge fund action surrounding NANO-X IMAGING LTD (NASDAQ:NNOX).
How have hedgies been trading NANO-X IMAGING LTD (NASDAQ:NNOX)?
Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6 from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in NNOX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Deerfield Management was the largest shareholder of NANO-X IMAGING LTD (NASDAQ:NNOX), with a stake worth $17.9 million reported as of the end of September. Trailing Deerfield Management was D E Shaw, which amassed a stake valued at $2.4 million. Zimmer Partners, Citadel Investment Group, and Citadel Investment Group 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 Deerfield Management allocated the biggest weight to NANO-X IMAGING LTD (NASDAQ:NNOX), around 0.44% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to NNOX.
Consequently, specific money managers were breaking ground themselves. Deerfield Management, managed by James E. Flynn, initiated the largest position in NANO-X IMAGING LTD (NASDAQ:NNOX). Deerfield Management had $17.9 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $2.4 million investment in the stock during the quarter. The following funds were also among the new NNOX investors: Stuart J. Zimmer’s Zimmer Partners, Ken Griffin’s Citadel Investment Group, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks similar to NANO-X IMAGING LTD (NASDAQ:NNOX). These stocks are Lindsay Corporation (NYSE:LNN), Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT), Ontrak, Inc. (NASDAQ:OTRK), Safety Insurance Group, Inc. (NASDAQ:SAFT), Cerus Corporation (NASDAQ:CERS), Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA), and BP Midstream Partners LP (NYSE:BPMP). This group of stocks’ market values resemble NNOX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $24 million in NNOX’s case. Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) is the most popular stock in this table. On the other hand BP Midstream Partners LP (NYSE:BPMP) is the least popular one with only 5 bullish hedge fund positions. NANO-X IMAGING LTD (NASDAQ:NNOX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NNOX is 15.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on NNOX as the stock returned 122.4% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.