Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in NANO-X IMAGING LTD (NASDAQ:NNOX)? The smart money sentiment can provide an answer to this question.
NANO-X IMAGING LTD (NASDAQ:NNOX) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that NNOX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare NNOX to other stocks including Empire State Realty Trust Inc (NYSE:ESRT), Immunocore Holdings plc (NASDAQ:IMCR), and Genetron Holdings Limited (NASDAQ:GTH) to get a better sense of its popularity.
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 115 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.
Alan Howard of Brevan Howard
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. With all of this in mind we're going to take a look at the latest hedge fund action encompassing NANO-X IMAGING LTD (NASDAQ:NNOX).
Do Hedge Funds Think NNOX Is A Good Stock To Buy Now?
At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in NNOX 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 NANO-X IMAGING LTD (NASDAQ:NNOX) was held by Citadel Investment Group, which reported holding $14 million worth of stock at the end of December. It was followed by PEAK6 Capital Management with a $4.6 million position. The only other hedge fund that is bullish on the company was ARK Investment Management.
Since NANO-X IMAGING LTD (NASDAQ:NNOX) has faced declining sentiment from the smart money, we can see that there is a sect of funds that slashed their full holdings by the end of the first quarter. At the top of the heap, D. E. Shaw's D E Shaw cut the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $8 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also said goodbye to its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to NANO-X IMAGING LTD (NASDAQ:NNOX). These stocks are Empire State Realty Trust Inc (NYSE:ESRT), Immunocore Holdings plc (NASDAQ:IMCR), Genetron Holdings Limited (NASDAQ:GTH), Repay Holdings Corporation (NASDAQ:RPAY), eHealth, Inc. (NASDAQ:EHTH), Eldorado Gold Corp (NYSE:EGO), and Seres Therapeutics Inc (NASDAQ:MCRB). All of these stocks' market caps are closest to NNOX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESRT,11,167127,-2 IMCR,17,269033,17 GTH,12,188265,-1 RPAY,15,127202,-5 EHTH,23,473077,-1 EGO,16,164708,2 MCRB,19,390565,2 Average,16.1,254282,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $6 million in NNOX's case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Empire State Realty Trust Inc (NYSE:ESRT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks NANO-X IMAGING LTD (NASDAQ:NNOX) is even less popular than ESRT. Our overall hedge fund sentiment score for NNOX is 20. 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. Hedge funds dodged a bullet by taking a bearish stance towards NNOX. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately NNOX wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); NNOX investors were disappointed as the stock returned -28.4% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.