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Were Hedge Funds Right About Snapping Up Nordson Corporation (NDSN)?

Is Nordson Corporation (NASDAQ:NDSN) 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, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Is Nordson Corporation (NASDAQ:NDSN) a cheap stock to buy now? The best stock pickers are getting more bullish. The number of long hedge fund positions increased by 3 in recent months. Our calculations also showed that NDSN isn’t among the 30 most popular stocks among hedge funds. NDSN was in 19 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 16 hedge funds in our database with NDSN holdings at the end of the previous quarter.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

We’re going to view the new hedge fund action surrounding Nordson Corporation (NASDAQ:NDSN).

Hedge fund activity in Nordson Corporation (NASDAQ:NDSN)

At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in NDSN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NDSN

Among these funds, Millennium Management held the most valuable stake in Nordson Corporation (NASDAQ:NDSN), which was worth $27.4 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $15.4 million worth of shares. Moreover, Select Equity Group, GAMCO Investors, and Arrowstreet Capital were also bullish on Nordson Corporation (NASDAQ:NDSN), allocating a large percentage of their portfolios to this stock.

Now, key money managers were breaking ground themselves. Select Equity Group, managed by Robert Joseph Caruso, assembled the most outsized position in Nordson Corporation (NASDAQ:NDSN). Select Equity Group had $7.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $4.2 million position during the quarter. The other funds with brand new NDSN positions are Jim Simons’s Renaissance Technologies, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Matthew Tewksbury’s Stevens Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Nordson Corporation (NASDAQ:NDSN) but similarly valued. We will take a look at Steel Dynamics, Inc. (NASDAQ:STLD), Invesco Ltd. (NYSE:IVZ), Lamar Advertising Co (NASDAQ:LAMR), and US Foods Holding Corp. (NYSE:USFD). All of these stocks’ market caps resemble NDSN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STLD 30 542904 2
IVZ 24 284167 -3
LAMR 22 252142 3
USFD 41 1206641 5
Average 29.25 571464 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $76 million in NDSN’s case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand Lamar Advertising Co (NASDAQ:LAMR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Nordson Corporation (NASDAQ:NDSN) is even less popular than LAMR. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on NDSN, though not to the same extent, as the stock returned 17.5% and outperformed the market as well.

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

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