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Were Hedge Funds Right About Varex Imaging Corporation (VREX)?

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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Varex Imaging Corporation (NASDAQ:VREX).

Is Varex Imaging Corporation (NASDAQ:VREX) a buy here? The smart money is getting less bullish. The number of bullish hedge fund bets retreated by 3 in recent months. Our calculations also showed that VREX 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).

To most market participants, hedge funds are perceived as unimportant, old investment tools of the past. While there are more than 8000 funds in operation at present, Our researchers choose to focus on the elite of this club, approximately 850 funds. Most estimates calculate that this group of people command bulk of the hedge fund industry’s total capital, and by tracking their highest performing investments, Insider Monkey has determined various investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment 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 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. 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 let’s check out the fresh hedge fund action regarding Varex Imaging Corporation (NASDAQ:VREX).

Hedge fund activity in Varex Imaging Corporation (NASDAQ:VREX)

Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VREX over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the largest position in Varex Imaging Corporation (NASDAQ:VREX), worth close to $44.9 million, comprising 0.2% of its total 13F portfolio. On Pzena Investment Management’s heels is Chuck Royce of Royce & Associates, with a $11.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Renaissance Technologies, D. E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Varex Imaging Corporation (NASDAQ:VREX), around 2.56% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, setting aside 0.62 percent of its 13F equity portfolio to VREX.

Seeing as Varex Imaging Corporation (NASDAQ:VREX) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers that elected to cut their full holdings in the third quarter. Interestingly, Nehal Chopra’s Ratan Capital Group dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Varex Imaging Corporation (NASDAQ:VREX). These stocks are ePlus Inc. (NASDAQ:PLUS), Mr. Cooper Group Inc. (NASDAQ:COOP), Banco BBVA Argentina S.A. (NYSE:BBAR), and Signet Jewelers Limited (NYSE:SIG). All of these stocks’ market caps are similar to VREX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLUS 13 45259 0
COOP 23 280344 -2
BBAR 9 14546 -1
SIG 22 188502 5
Average 16.75 132163 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $103 million in VREX’s case. Mr. Cooper Group Inc. (NASDAQ:COOP) is the most popular stock in this table. On the other hand Banco BBVA Argentina S.A. (NYSE:BBAR) is the least popular one with only 9 bullish hedge fund positions. Varex Imaging Corporation (NASDAQ:VREX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 12.9 percentage points. Unfortunately VREX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VREX were disappointed as the stock returned -14.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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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