Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
NuVasive, Inc. (NASDAQ:NUVA) was in 20 hedge funds’ portfolios at the end of December. NUVA shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 22 hedge funds in our database with NUVA holdings at the end of the previous quarter. Our calculations also showed that nuva isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s take a glance at the latest hedge fund action surrounding NuVasive, Inc. (NASDAQ:NUVA).
How have hedgies been trading NuVasive, Inc. (NASDAQ:NUVA)?
At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NUVA over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NuVasive, Inc. (NASDAQ:NUVA) was held by Fisher Asset Management, which reported holding $63.1 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $28.7 million position. Other investors bullish on the company included Tamarack Capital Management, Millennium Management, and Balyasny Asset Management.
Since NuVasive, Inc. (NASDAQ:NUVA) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Mitchell Blutt’s Consonance Capital Management dropped the biggest stake of the 700 funds followed by Insider Monkey, valued at about $77.3 million in stock, and Jeremy Green’s Redmile Group was right behind this move, as the fund cut about $31.2 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to NuVasive, Inc. (NASDAQ:NUVA). These stocks are RH (NYSE:RH), WD-40 Company (NASDAQ:WDFC), Finisar Corporation (NASDAQ:FNSR), and Resideo Technologies, Inc. (NYSE:REZI). This group of stocks’ market valuations match NUVA’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 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $208 million in NUVA’s case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand Finisar Corporation (NASDAQ:FNSR) is the least popular one with only 13 bullish hedge fund positions. NuVasive, Inc. (NASDAQ:NUVA) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately NUVA wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); NUVA investors were disappointed as the stock returned 11.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.