In this article we will check out the progression of hedge fund sentiment towards Varex Imaging Corporation (NASDAQ:VREX) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Varex Imaging Corporation (NASDAQ:VREX) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of the first quarter of 2020. At the end of this article we will also compare VREX to other stocks including Construction Partners, Inc. (NASDAQ:ROAD), Cactus, Inc. (NYSE:WHD), and Office Depot Inc (NYSE:ODP) to get a better sense of its popularity. 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_844243" align="aligncenter" width="400"] Donald Sussman of Paloma Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the recent hedge fund action surrounding Varex Imaging Corporation (NASDAQ:VREX).
What does smart money think about Varex Imaging Corporation (NASDAQ:VREX)?
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. 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 notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of Varex Imaging Corporation (NASDAQ:VREX), with a stake worth $29.9 million reported as of the end of September. Trailing Pzena Investment Management was Renaissance Technologies, which amassed a stake valued at $8.3 million. Royce & Associates, D E Shaw, and Rutabaga Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Varex Imaging Corporation (NASDAQ:VREX), around 3.6% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 0.34 percent of its 13F equity portfolio to VREX.
Judging by the fact that Varex Imaging Corporation (NASDAQ:VREX) has faced falling interest from hedge fund managers, we can see that there lies a certain "tier" of funds that slashed their positions entirely heading into Q4. It's worth mentioning that Israel Englander's Millennium Management said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, totaling about $1.2 million in stock. Andre F. Perold's fund, HighVista Strategies, also dumped its stock, about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Varex Imaging Corporation (NASDAQ:VREX). We will take a look at Construction Partners, Inc. (NASDAQ:ROAD), Cactus, Inc. (NYSE:WHD), Office Depot Inc (NYSE:ODP), and Scholastic Corp (NASDAQ:SCHL). This group of stocks' market valuations are closest to VREX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROAD,6,21553,-4 WHD,18,99361,1 ODP,17,70351,1 SCHL,11,44442,-4 Average,13,58927,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $68 million in VREX's case. Cactus, Inc. (NYSE:WHD) is the most popular stock in this table. On the other hand Construction Partners, Inc. (NASDAQ:ROAD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Varex Imaging Corporation (NASDAQ:VREX) is more popular among hedge funds. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 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 -33.1% during the second quarter (through June 22nd) 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.
Disclosure: None. This article was originally published at Insider Monkey.