Was The Smart Money Right About Embracing Align Technology, Inc. (ALGN)?

Is Align Technology, Inc. (NASDAQ:ALGN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Align Technology, Inc. (NASDAQ:ALGN) a safe investment right now? Money managers were betting on the stock. The number of long hedge fund positions moved up by 2 recently. Align Technology, Inc. (NASDAQ:ALGN) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 43. Our calculations also showed that ALGN 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). There were 39 hedge funds in our database with ALGN positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most traders, hedge funds are perceived as underperforming, old investment tools of yesteryear. While there are greater than 8000 funds trading at present, We hone in on the crème de la crème of this group, approximately 850 funds. These hedge fund managers shepherd bulk of all hedge funds’ total asset base, and by observing their highest performing picks, Insider Monkey has revealed various investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Arthur B Cohen and Joseph Healey of Healthcor Management LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to take a peek at the new hedge fund action surrounding Align Technology, Inc. (NASDAQ:ALGN).

How are hedge funds trading Align Technology, Inc. (NASDAQ:ALGN)?

Heading into the third quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALGN over the last 20 quarters. So, let’s see 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, Renaissance Technologies, holds the biggest position in Align Technology, Inc. (NASDAQ:ALGN). Renaissance Technologies has a $606.7 million position in the stock, comprising 0.5% of its 13F portfolio. On Renaissance Technologies’s heels is Brian Bares of Bares Capital Management, with a $384.7 million position; the fund has 9.5% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Lei Zhang’s Hillhouse Capital Management, Andreas Halvorsen’s Viking Global and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Align Technology, Inc. (NASDAQ:ALGN), around 9.49% of its 13F portfolio. Hitchwood Capital Management is also relatively very bullish on the stock, designating 2.12 percent of its 13F equity portfolio to ALGN.

Now, key hedge funds were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, established the most valuable position in Align Technology, Inc. (NASDAQ:ALGN). Viking Global had $148 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $51.7 million position during the quarter. The other funds with brand new ALGN positions are Philippe Laffont’s Coatue Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Align Technology, Inc. (NASDAQ:ALGN) but similarly valued. We will take a look at Welltower Inc. (NYSE:WELL), Sun Life Financial Inc. (NYSE:SLF), Stanley Black & Decker, Inc. (NYSE:SWK), Skyworks Solutions Inc (NASDAQ:SWKS), Trane Technologies plc (NYSE:TT), TELUS Corporation (NYSE:TU), and FleetCor Technologies, Inc. (NYSE:FLT). This group of stocks’ market values are closest to ALGN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WELL 27 655260 2
SLF 14 85306 -2
SWK 33 807322 -3
SWKS 49 993689 20
TT 40 730073 4
TU 15 194956 0
FLT 53 2212169 2
Average 33 811254 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $811 million. That figure was $1961 million in ALGN’s case. FleetCor Technologies, Inc. (NYSE:FLT) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 14 bullish hedge fund positions. Align Technology, Inc. (NASDAQ:ALGN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALGN is 70.2. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on ALGN as the stock returned 71.1% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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