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Hedge Funds Are Dumping Nordson Corporation (NDSN)

Debasis Saha

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 750 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 Nordson Corporation (NASDAQ:NDSN).

Nordson Corporation (NASDAQ:NDSN) was in 15 hedge funds' portfolios at the end of the third quarter of 2019. NDSN investors should pay attention to a decrease in support from the world's most elite money managers recently. There were 17 hedge funds in our database with NDSN positions at the end of the previous quarter. Our calculations also showed that NDSN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_193003" align="alignnone" width="600"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce

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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to analyze the key hedge fund action regarding Nordson Corporation (NASDAQ:NDSN).

What does smart money think about Nordson Corporation (NASDAQ:NDSN)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NDSN over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NDSN A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Royce & Associates, managed by Chuck Royce, holds the number one position in Nordson Corporation (NASDAQ:NDSN). Royce & Associates has a $18.4 million position in the stock, comprising 0.2% of its 13F portfolio. On Royce & Associates's heels is Millennium Management, led by Israel Englander, holding a $9.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions include Mario Gabelli's GAMCO Investors, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners and Donald Sussman's Paloma Partners. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Nordson Corporation (NASDAQ:NDSN), around 0.17% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to NDSN.

Judging by the fact that Nordson Corporation (NASDAQ:NDSN) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of hedgies that slashed their entire stakes in the third quarter. It's worth mentioning that Robert Joseph Caruso's Select Equity Group said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at about $10 million in stock. Curtis Schenker and Craig Effron's fund, Scoggin, also sold off its stock, about $2.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Nordson Corporation (NASDAQ:NDSN) but similarly valued. We will take a look at Aspen Technology, Inc. (NASDAQ:AZPN), Westlake Chemical Corporation (NYSE:WLK), Cognex Corporation (NASDAQ:CGNX), and News Corp (NASDAQ:NWS). All of these stocks' market caps are similar to NDSN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AZPN,28,1267011,2 WLK,18,352906,-5 CGNX,18,179338,5 NWS,11,33867,2 Average,18.75,458281,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $44 million in NDSN's case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 11 bullish hedge fund positions. Nordson Corporation (NASDAQ:NDSN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NDSN as the stock returned 13.4% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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