Is ONTO A Good Stock To Buy Now?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Onto Innovation Inc. (NYSE:ONTO) based on that data.

Is ONTO a good stock to buy now? Onto Innovation Inc. (NYSE:ONTO) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 19. ONTO investors should be aware of a decrease in hedge fund sentiment lately. There were 17 hedge funds in our database with ONTO positions at the end of the second quarter. Our calculations also showed that ONTO 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gavin Saitowitz of Prelude Capital

Gavin Saitowitz of Prelude Capital

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 fresh hedge fund action surrounding Onto Innovation Inc. (NYSE:ONTO).

Do Hedge Funds Think ONTO Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ONTO over the last 21 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is ONTO A Good Stock To Buy?

The largest stake in Onto Innovation Inc. (NYSE:ONTO) was held by Renaissance Technologies, which reported holding $34.6 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $34.3 million position. Other investors bullish on the company included Royce & Associates, Value Holdings LP, and Impax Asset Management. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to Onto Innovation Inc. (NYSE:ONTO), around 1.93% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.25 percent of its 13F equity portfolio to ONTO.

Due to the fact that Onto Innovation Inc. (NYSE:ONTO) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their entire stakes last quarter. It’s worth mentioning that Michael Gelband’s ExodusPoint Capital dumped the largest investment of all the hedgies followed by Insider Monkey, totaling close to $2.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $1.4 million worth. These moves 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 – not necessarily in the same industry as Onto Innovation Inc. (NYSE:ONTO) but similarly valued. These stocks are Health Catalyst, Inc (NASDAQ:HCAT), Domtar Corporation (NYSE:UFS), American Assets Trust, Inc (NYSE:AAT), AeroVironment, Inc. (NASDAQ:AVAV), Cactus, Inc. (NYSE:WHD), Delphi Technologies PLC (NYSE:DLPH), and Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). This group of stocks’ market caps resemble ONTO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HCAT 14 130755 1
UFS 24 218760 -3
AAT 15 29076 -5
AVAV 16 49345 -1
WHD 20 103650 -2
DLPH 29 397481 2
IRWD 24 297292 -8
Average 20.3 175194 -2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $114 million in ONTO’s case. Delphi Technologies PLC (NYSE:DLPH) is the most popular stock in this table. On the other hand Health Catalyst, Inc (NASDAQ:HCAT) is the least popular one with only 14 bullish hedge fund positions. Onto Innovation Inc. (NYSE:ONTO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ONTO is 30. 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 December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ONTO as the stock returned 56.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.