Were These Hedge Funds Wrong About Betting On NuVasive, Inc. (NUVA)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about NuVasive, Inc. (NASDAQ:NUVA).

NuVasive, Inc. (NASDAQ:NUVA) shareholders have witnessed an increase in hedge fund sentiment of late. NuVasive, Inc. (NASDAQ:NUVA) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 37. There were 24 hedge funds in our database with NUVA positions at the end of the first quarter. Our calculations also showed that NUVA 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).

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

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Arthur B Cohen and Joseph Healey of Healthcor Management LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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. With all of this in mind we’re going to take a glance at the key hedge fund action regarding NuVasive, Inc. (NASDAQ:NUVA).

What have hedge funds been doing with NuVasive, Inc. (NASDAQ:NUVA)?

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NUVA over the last 20 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in NuVasive, Inc. (NASDAQ:NUVA). Citadel Investment Group has a $95.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by James E. Flynn of Deerfield Management, with a $93.1 million position; the fund has 2.7% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Ken Fisher’s Fisher Asset Management, Arthur B Cohen and Joseph Healey’s Healthcor Management LP and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to NuVasive, Inc. (NASDAQ:NUVA), around 2.71% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, earmarking 2.26 percent of its 13F equity portfolio to NUVA.

As industrywide interest jumped, key money managers have jumped into NuVasive, Inc. (NASDAQ:NUVA) headfirst. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, created the largest position in NuVasive, Inc. (NASDAQ:NUVA). Healthcor Management LP had $54 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $26 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Bhagwan Jay Rao’s Integral Health Asset Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NuVasive, Inc. (NASDAQ:NUVA) but similarly valued. These stocks are Shift4 Payments, Inc. (NYSE:FOUR), Univar Solutions Inc (NYSE:UNVR), National Beverage Corp. (NASDAQ:FIZZ), Corporate Office Properties Trust (NYSE:OFC), Blackbaud, Inc. (NASDAQ:BLKB), ALLETE Inc (NYSE:ALE), and AAON, Inc. (NASDAQ:AAON). This group of stocks’ market valuations are similar to NUVA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOUR 15 72444 15
UNVR 31 920084 -1
FIZZ 21 259591 1
OFC 20 209407 3
BLKB 19 95711 -3
ALE 25 119344 7
AAON 15 26745 4
Average 20.9 243332 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $485 million in NUVA’s case. Univar Solutions Inc (NYSE:UNVR) is the most popular stock in this table. On the other hand Shift4 Payments, Inc. (NYSE:FOUR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks NuVasive, Inc. (NASDAQ:NUVA) is more popular among hedge funds. Our overall hedge fund sentiment score for NUVA is 86.8. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately NUVA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NUVA were disappointed as the stock returned -20.2% since the end of the second quarter (through 10/30) 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 most of these stocks already outperformed the market in 2020.

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