We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Nordson Corporation (NASDAQ:NDSN) in this article.
Nordson Corporation (NASDAQ:NDSN) has seen an increase in activity from the world's largest hedge funds recently. Our calculations also showed that NDSN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_193003" align="aligncenter" width="399"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's check out the fresh hedge fund action surrounding Nordson Corporation (NASDAQ:NDSN).
How are hedge funds trading Nordson Corporation (NASDAQ:NDSN)?
At Q4's end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 81% from the third quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in NDSN a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Nordson Corporation (NASDAQ:NDSN) was held by Arrowstreet Capital, which reported holding $29.3 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $24.9 million position. Other investors bullish on the company included Citadel Investment Group, Royce & Associates, and Millennium Management. In terms of the portfolio weights assigned to each position Columbus Circle Investors allocated the biggest weight to Nordson Corporation (NASDAQ:NDSN), around 0.49% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, designating 0.42 percent of its 13F equity portfolio to NDSN.
Now, some big names have jumped into Nordson Corporation (NASDAQ:NDSN) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Nordson Corporation (NASDAQ:NDSN). Arrowstreet Capital had $29.3 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $24.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Principal Global Investors's Columbus Circle Investors, Michael Gelband's ExodusPoint Capital, and Renaissance Technologies.
Let's check out 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 Coupa Software Incorporated (NASDAQ:COUP), Whirlpool Corporation (NYSE:WHR), Tata Motors Limited (NYSE:TTM), and Snap-on Incorporated (NYSE:SNA). This group of stocks' market values resemble NDSN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COUP,55,2624527,-2 WHR,28,1045246,-3 TTM,11,148219,4 SNA,27,557734,0 Average,30.25,1093932,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1094 million. That figure was $152 million in NDSN's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NDSN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NDSN investors were disappointed as the stock returned -36.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.