Were Hedge Funds Right About Align Technology (ALGN)?

In this article we will take a look at whether hedge funds think Align Technology, Inc. (NASDAQ:ALGN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Align Technology, Inc. (NASDAQ:ALGN) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Align Technology, Inc. (NASDAQ:ALGN) was in 57 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 50. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 49 hedge funds in our database with ALGN holdings at the end of March. Our calculations also showed that ALGN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s view the key hedge fund action encompassing Align Technology, Inc. (NASDAQ:ALGN).

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

At second quarter’s end, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ALGN over the last 24 quarters. With hedgies’ positions undergoing their usual ebb and flow, 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, Melvin Capital Management, managed by Gabriel Plotkin, holds the biggest position in Align Technology, Inc. (NASDAQ:ALGN). Melvin Capital Management has a $386.2 million position in the stock, comprising 2.2% of its 13F portfolio. The second largest stake is held by Brian Bares of Bares Capital Management, with a $378.8 million position; the fund has 6.7% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain Ken Fisher’s Fisher Asset Management, Andreas Halvorsen’s Viking Global and Gabriel Plotkin’s Melvin Capital 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 6.74% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 4.09 percent of its 13F equity portfolio to ALGN.

Consequently, some big names were leading the bulls’ herd. Melvin Capital Management, managed by Gabriel Plotkin, established the most valuable call position in Align Technology, Inc. (NASDAQ:ALGN). Melvin Capital Management had $213.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $43.6 million position during the quarter. The other funds with brand new ALGN positions are Leon Shaulov’s Maplelane Capital, Larry Chen and Terry Zhang’s Tairen Capital, and Andrew Dalrymple and Barry McCorkell’s Aubrey Capital Management.

Let’s check out hedge fund activity in other stocks similar to Align Technology, Inc. (NASDAQ:ALGN). These stocks are Monster Beverage Corp (NASDAQ:MNST), eBay Inc (NASDAQ:EBAY), Marvell Technology, Inc. (NASDAQ:MRVL), Vodafone Group Plc (NASDAQ:VOD), Veeva Systems Inc (NYSE:VEEV), Dow Inc. (NYSE:DOW), and Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG). All of these stocks’ market caps are closest to ALGN’s market cap.

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As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1379 million. That figure was $2690 million in ALGN’s case. Marvell Technology, Inc. (NASDAQ:MRVL) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Align Technology, Inc. (NASDAQ:ALGN) is more popular among hedge funds. Our overall hedge fund sentiment score for ALGN is 90. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately ALGN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ALGN were disappointed as the stock returned 2.2% since the end of the second quarter (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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