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Most Hedge Funds Sticking With Nevro Corp (NVRO)

In this article you are going to find out whether hedge funds think Nevro Corp (NYSE:NVRO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Nevro Corp (NYSE:NVRO) was in 31 hedge funds’ portfolios at the end of March. NVRO shareholders have witnessed a decrease in hedge fund interest of late. There were 33 hedge funds in our database with NVRO holdings at the end of the previous quarter. Our calculations also showed that NVRO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 51 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.

Arthur B Cohen and Joseph Healey of Healthcor Management LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Nevro Corp (NYSE:NVRO).

Hedge fund activity in Nevro Corp (NYSE:NVRO)

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NVRO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Healthcor Management LP was the largest shareholder of Nevro Corp (NYSE:NVRO), with a stake worth $175.2 million reported as of the end of September. Trailing Healthcor Management LP was D E Shaw, which amassed a stake valued at $149.5 million. Perceptive Advisors, Redmile Group, and Renaissance Technologies 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 Healthcor Management LP allocated the biggest weight to Nevro Corp (NYSE:NVRO), around 7.49% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 5.41 percent of its 13F equity portfolio to NVRO.

Seeing as Nevro Corp (NYSE:NVRO) has witnessed declining sentiment from the smart money, logic holds that there is a sect of fund managers that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Christopher James’s Partner Fund Management cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $67.8 million in stock, and Ben Gambill’s Tiger Eye Capital was right behind this move, as the fund cut about $28 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Nevro Corp (NYSE:NVRO). We will take a look at B2Gold Corp (NYSE:BTG), Nektar Therapeutics (NASDAQ:NKTR), Balchem Corporation (NASDAQ:BCPC), and Sibanye Stillwater Limited (NYSE:SBSW). This group of stocks’ market valuations match NVRO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BTG 19 228596 2
NKTR 17 198202 -9
BCPC 13 56015 1
SBSW 19 83948 6
Average 17 141690 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $694 million in NVRO’s case. B2Gold Corp (NYSE:BTG) is the most popular stock in this table. On the other hand Balchem Corporation (NASDAQ:BCPC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Nevro Corp (NYSE:NVRO) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on NVRO as the stock returned 25.6% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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