Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Nordson Corporation (NASDAQ:NDSN)? The smart money sentiment can provide an answer to this question.
Is NDSN a good stock to buy now? Nordson Corporation (NASDAQ:NDSN) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of September. Our calculations also showed that NDSN 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Guardant Health, Inc. (NASDAQ:GH), Kinross Gold Corporation (NYSE:KGC), and Brookfield Property Partners LP (NASDAQ:BPY) to gather more data points.
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. Keeping this in mind we’re going to take a look at the new hedge fund action regarding Nordson Corporation (NASDAQ:NDSN).
Do Hedge Funds Think NDSN Is A Good Stock To Buy Now?
At third quarter’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NDSN over the last 21 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Columbus Circle Investors held the most valuable stake in Nordson Corporation (NASDAQ:NDSN), which was worth $15 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $13.2 million worth of shares. AQR Capital Management, GAMCO Investors, and Scopus Asset Management 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 Columbus Circle Investors allocated the biggest weight to Nordson Corporation (NASDAQ:NDSN), around 0.65% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.22 percent of its 13F equity portfolio to NDSN.
Judging by the fact that Nordson Corporation (NASDAQ:NDSN) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Joe Milano’s Greenhouse Funds said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at about $10.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $8.8 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nordson Corporation (NASDAQ:NDSN) but similarly valued. We will take a look at Guardant Health, Inc. (NASDAQ:GH), Kinross Gold Corporation (NYSE:KGC), Brookfield Property Partners LP (NASDAQ:BPY), Regions Financial Corporation (NYSE:RF), E*TRADE Financial Corporation (NASDAQ:ETFC), Western Digital Corporation (NASDAQ:WDC), and Principal Financial Group Inc (NASDAQ:PFG). This group of stocks’ market valuations are similar to NDSN’s market valuation.
|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 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $586 million. That figure was $64 million in NDSN’s case. Guardant Health, Inc. (NASDAQ:GH) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NASDAQ:BPY) is the least popular one with only 8 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 overall hedge fund sentiment score for NDSN is 46.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 December 14th and surpassed the market again by 15.8 percentage points. Unfortunately NDSN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NDSN investors were disappointed as the stock returned 4.1% since the end of September (through 12/14) 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 2020.
Disclosure: None. This article was originally published at Insider Monkey.