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Did Hedge Funds Make The Right Call On Natus Medical Inc (NTUS)?

Abigail Fisher
·6 mins read

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Natus Medical Inc (NASDAQ:NTUS) and determine whether hedge funds skillfully traded this stock.

Is Natus Medical Inc (NASDAQ:NTUS) a buy right now? Money managers were taking a pessimistic view. The number of bullish hedge fund positions were cut by 1 in recent months. Our calculations also showed that NTUS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NTUS was in 23 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with NTUS positions at the end of the previous quarter. 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_758429" align="aligncenter" width="396"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital
Ric Dillon Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we're going to take a glance at the latest hedge fund action surrounding Natus Medical Inc (NASDAQ:NTUS).

How have hedgies been trading Natus Medical Inc (NASDAQ:NTUS)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the fourth quarter of 2019. By comparison, 24 hedge funds held shares or bullish call options in NTUS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Natus Medical Inc (NASDAQ:NTUS) was held by Impax Asset Management, which reported holding $13.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $12.2 million position. Other investors bullish on the company included Fisher Asset Management, Arrowstreet Capital, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Natus Medical Inc (NASDAQ:NTUS), around 2.81% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, designating 0.41 percent of its 13F equity portfolio to NTUS.

Judging by the fact that Natus Medical Inc (NASDAQ:NTUS) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers that slashed their entire stakes in the first quarter. Interestingly, Israel Englander's Millennium Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, totaling about $4.5 million in stock, and J. Daniel Plants's Voce Capital was right behind this move, as the fund dropped about $3.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Natus Medical Inc (NASDAQ:NTUS) but similarly valued. These stocks are FARO Technologies, Inc. (NASDAQ:FARO), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), Golar LNG Limited (NASDAQ:GLNG), and Unitil Corporation (NYSE:UTL). All of these stocks' market caps resemble NTUS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FARO,12,112398,0 HOLI,12,41739,0 GLNG,10,153667,-9 UTL,9,62219,-3 Average,10.75,92506,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $72 million in NTUS's case. FARO Technologies, Inc. (NASDAQ:FARO) is the most popular stock in this table. On the other hand Unitil Corporation (NYSE:UTL) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Natus Medical Inc (NASDAQ:NTUS) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately NTUS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NTUS were disappointed as the stock returned -5.7% during the second quarter 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.

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