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Was The Smart Money Right About Nova Measuring Instruments Ltd. (NVMI)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Nova Measuring Instruments Ltd. (NASDAQ:NVMI) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Photronics, Inc. (NASDAQ:PLAB), The Greenbrier Companies Inc (NYSE:GBX), and ARMOUR Residential REIT, Inc. (NYSE:ARR) to gather more data points. Our calculations also showed that NVMI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. 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 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 Nova Measuring Instruments Ltd. (NASDAQ:NVMI).

What have hedge funds been doing with Nova Measuring Instruments Ltd. (NASDAQ:NVMI)?

At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in NVMI a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the largest position in Nova Measuring Instruments Ltd. (NASDAQ:NVMI). Adage Capital Management has a $98.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $75.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Chuck Royce’s Royce & Associates, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Adage Capital Management allocated the biggest weight to Nova Measuring Instruments Ltd. (NASDAQ:NVMI), around 0.24% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to NVMI.

Judging by the fact that Nova Measuring Instruments Ltd. (NASDAQ:NVMI) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who sold off their entire stakes last quarter. Interestingly, Ken Griffin’s Citadel Investment Group cut the biggest position of all the hedgies monitored by Insider Monkey, totaling an estimated $0.9 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Nova Measuring Instruments Ltd. (NASDAQ:NVMI) but similarly valued. These stocks are Photronics, Inc. (NASDAQ:PLAB), The  Greenbrier Companies Inc (NYSE:GBX), ARMOUR Residential REIT, Inc. (NYSE:ARR), and Oasis Petroleum Inc. (NASDAQ:OAS). All of these stocks’ market caps are closest to NVMI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLAB 21 113599 3
GBX 12 24436 2
ARR 11 34003 -3
OAS 17 97611 2
Average 15.25 67412 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $203 million in NVMI’s case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand ARMOUR Residential REIT, Inc. (NYSE:ARR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is even less popular than ARR. 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 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on NVMI, though not to the same extent, as the stock returned -3.5% during the same time period and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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