Is Nuance Communications Inc. (NUAN) A Good Stock To Buy?

After several tireless days we have finished crunching the numbers from the more than 700 13F filings issued by the successful hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Nuance Communications Inc. (NASDAQ:NUAN) .

Nuance Communications Inc. (NASDAQ:NUAN) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. NUAN was in 32 hedge funds’ portfolios at the end of September. There were 33 hedge funds in our database with NUAN holdings at the end of the previous quarter. 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 DCP Midstream Partners, LP (NYSE:DPM), Urban Outfitters, Inc. (NASDAQ:URBN), and Curtiss-Wright Corp. (NYSE:CW) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

What does the smart money think about Nuance Communications Inc. (NASDAQ:NUAN)?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decrease of 3% from the second quarter of 2016. On the other hand, there were a total of 31 hedge funds with a bullish position in NUAN at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Carl Icahn’s Icahn Capital LP has the number one position in Nuance Communications Inc. (NASDAQ:NUAN), worth close to $285.3 million, comprising 1.4% of its total 13F portfolio. On Icahn Capital LP’s heels is AQR Capital Management, led by Cliff Asness, which holds a $74.1 million position. Some other professional money managers with similar optimism consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Glenn Russell Dubin’s Highbridge Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that sold off their entire stakes in the stock during the third quarter. It’s worth mentioning that Peter Muller’s PDT Partners sold off the biggest investment of the “upper crust” of funds studied by Insider Monkey, totaling close to $6.7 million in stock, and Daniel S. Och’s OZ Management was right behind this move, as the fund cut about $3.9 million worth of shares.

Let’s check out hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). We will take a look at DCP Midstream Partners, LP (NYSE:DPM), Urban Outfitters, Inc. (NASDAQ:URBN), Curtiss-Wright Corp. (NYSE:CW), and Teradata Corporation (NYSE:TDC). This group of stocks’ market valuations resemble NUAN’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $570 million in NUAN’s case. Urban Outfitters, Inc. (NASDAQ:URBN) is the most popular stock in this table. On the other hand DCP Midstream Partners, LP (NYSE:DPM) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None