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Is Align Technology, Inc. (ALGN) Going to Burn These Hedge Funds?

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At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Align Technology, Inc. (NASDAQ:ALGN) makes for a good investment right now.

Align Technology, Inc. (NASDAQ:ALGN) investors should be aware of a decrease in hedge fund sentiment lately. Align Technology, Inc. (NASDAQ:ALGN) was in 49 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 50. There were 50 hedge funds in our database with ALGN positions at the end of the fourth quarter. Our calculations also showed that ALGN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. Now let's take a glance at the fresh hedge fund action regarding Align Technology, Inc. (NASDAQ:ALGN).

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

At first quarter's end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the previous quarter. By comparison, 39 hedge funds held shares or bullish call options in ALGN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Bares Capital Management, managed by Brian Bares, holds the number one position in Align Technology, Inc. (NASDAQ:ALGN). Bares Capital Management has a $416.9 million position in the stock, comprising 7.8% of its 13F portfolio. Sitting at the No. 2 spot is Andreas Halvorsen of Viking Global, with a $295 million position; 0.9% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions include Ken Fisher's Fisher Asset Management, Ken Griffin's Citadel Investment Group 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 7.8% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, dishing out 4.82 percent of its 13F equity portfolio to ALGN.

Due to the fact that Align Technology, Inc. (NASDAQ:ALGN) has witnessed falling interest from the smart money, it's safe to say that there exists a select few money managers that elected to cut their entire stakes heading into Q2. It's worth mentioning that Lei Zhang's Hillhouse Capital Management dumped the largest position of the 750 funds watched by Insider Monkey, totaling close to $97.4 million in stock. Philippe Laffont's fund, Coatue Management, also cut its stock, about $47 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q2.

Let's also examine hedge fund activity in other stocks similar to Align Technology, Inc. (NASDAQ:ALGN). We will take a look at Ross Stores, Inc. (NASDAQ:ROST), Exelon Corporation (NASDAQ:EXC), TE Connectivity Ltd. (NYSE:TEL), Biogen Inc. (NASDAQ:BIIB), Palantir Technologies Inc. (NYSE:PLTR), EOG Resources Inc (NYSE:EOG), and Roper Technologies Inc. (NYSE:ROP). This group of stocks' market valuations match ALGN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROST,48,976585,-9 EXC,44,1134135,14 TEL,39,2343917,0 BIIB,63,2481373,0 PLTR,32,1147240,-6 EOG,30,596119,-15 ROP,42,1497344,2 Average,42.6,1453816,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.6 hedge funds with bullish positions and the average amount invested in these stocks was $1454 million. That figure was $2831 million in ALGN's case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand EOG Resources Inc (NYSE:EOG) is the least popular one with only 30 bullish hedge fund positions. Align Technology, Inc. (NASDAQ:ALGN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALGN is 62.2. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on ALGN, though not to the same extent, as the stock returned 11.1% since Q1 (through June 18th) and outperformed the market as well.

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