Was The Smart Money Right About Crowding Into Nevro Corp (NVRO)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Nevro Corp (NYSE:NVRO) in this article.

Is Nevro Corp (NYSE:NVRO) a healthy stock for your portfolio? Money managers were getting more optimistic. The number of long hedge fund positions improved by 4 in recent months. Nevro Corp (NYSE:NVRO) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NVRO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 58 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest telecom companies to identify fast growing companies in various industries. 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the latest hedge fund action encompassing Nevro Corp (NYSE:NVRO).

Hedge fund activity in Nevro Corp (NYSE:NVRO)

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in NVRO a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Nevro Corp (NYSE:NVRO) was held by D E Shaw, which reported holding $150.7 million worth of stock at the end of June. It was followed by Healthcor Management LP with a $125.9 million position. Other investors bullish on the company included Perceptive Advisors, Redmile Group, and Rock Springs Capital Management. In terms of the portfolio weights assigned to each position Tiger Eye Capital allocated the biggest weight to Nevro Corp (NYSE:NVRO), around 5.46% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, designating 5.28 percent of its 13F equity portfolio to NVRO.

Now, key money managers have been driving this bullishness. Tiger Eye Capital, managed by Ben Gambill, created the most valuable position in Nevro Corp (NYSE:NVRO). Tiger Eye Capital had $23 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $14.2 million position during the quarter. The other funds with brand new NVRO positions are Christopher James’s Partner Fund Management, Krishen Sud’s Sivik Global Healthcare, and Guy Levy’s Soleus Capital.

Let’s also examine hedge fund activity in other stocks similar to Nevro Corp (NYSE:NVRO). These stocks are Cameco Corporation (NYSE:CCJ), CMC Materials, Inc. (NASDAQ:CCMP), Qualys Inc (NASDAQ:QLYS), MSC Industrial Direct Co Inc (NYSE:MSM), Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC), Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), and TFS Financial Corporation (NASDAQ:TFSL). This group of stocks’ market valuations resemble NVRO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $757 million in NVRO’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 7 bullish hedge fund positions. Nevro Corp (NYSE:NVRO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVRO is 77.9. 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 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 gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on NVRO as the stock returned 24.9% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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