Is Nuance Communications Inc. (NASDAQ:NUAN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is NUAN a good stock to buy now? Nuance Communications Inc. (NASDAQ:NUAN) has experienced an increase in support from the world’s most elite money managers recently. Nuance Communications Inc. (NASDAQ:NUAN) was in 45 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 44 hedge funds in our database with NUAN holdings at the end of June. Our calculations also showed that NUAN 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.
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 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. 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 peek at the latest hedge fund action encompassing Nuance Communications Inc. (NASDAQ:NUAN).
Do Hedge Funds Think NUAN Is A Good Stock To Buy Now?
At the end of September, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the second quarter of 2020. On the other hand, there were a total of 29 hedge funds with a bullish position in NUAN 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.
The largest stake in Nuance Communications Inc. (NASDAQ:NUAN) was held by Viking Global, which reported holding $563.7 million worth of stock at the end of September. It was followed by Coatue Management with a $300.7 million position. Other investors bullish on the company included Eminence Capital, Lone Pine Capital, and Melvin Capital Management. In terms of the portfolio weights assigned to each position RGM Capital allocated the biggest weight to Nuance Communications Inc. (NASDAQ:NUAN), around 8.11% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, setting aside 7.68 percent of its 13F equity portfolio to NUAN.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Coatue Management, managed by Philippe Laffont, initiated the biggest position in Nuance Communications Inc. (NASDAQ:NUAN). Coatue Management had $300.7 million invested in the company at the end of the quarter. Lone Pine Capital also initiated a $281.5 million position during the quarter. The other funds with new positions in the stock are Stanley Druckenmiller’s Duquesne Capital, Israel Englander’s Millennium Management, and Jeffrey Hoffner’s Engle Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nuance Communications Inc. (NASDAQ:NUAN) but similarly valued. These stocks are Shaw Communications Inc (NYSE:SJR), Huntington Bancshares Incorporated (NASDAQ:HBAN), Medical Properties Trust, Inc. (NYSE:MPW), Elastic N.V. (NYSE:ESTC), Galapagos NV (NASDAQ:GLPG), Vistra Corp. (NYSE:VST), and Quidel Corporation (NASDAQ:QDEL). This group of stocks’ market valuations match NUAN’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 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $579 million. That figure was $3051 million in NUAN’s case. Vistra Corp. (NYSE:VST) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 11 bullish hedge fund positions. Nuance Communications Inc. (NASDAQ:NUAN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NUAN is 86. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on NUAN as the stock returned 27.7% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.