Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Nevro Corp (NYSE:NVRO) a healthy stock for your portfolio? The best stock pickers are in a bullish mood. The number of long hedge fund positions moved up by 12 recently. Our calculations also showed that nvro isn't among the 30 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a glance at the fresh hedge fund action encompassing Nevro Corp (NYSE:NVRO).
How have hedgies been trading Nevro Corp (NYSE:NVRO)?
At Q1's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NVRO over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in Nevro Corp (NYSE:NVRO), which was worth $115.7 million at the end of the first quarter. On the second spot was Millennium Management which amassed $69.4 million worth of shares. Moreover, Partner Fund Management, Adage Capital Management, and Broadfin Capital were also bullish on Nevro Corp (NYSE:NVRO), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Perceptive Advisors, managed by Joseph Edelman, established the most outsized position in Nevro Corp (NYSE:NVRO). Perceptive Advisors had $26.1 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey's Healthcor Management LP also initiated a $16.1 million position during the quarter. The following funds were also among the new NVRO investors: Jim Simons's Renaissance Technologies, Daniel Beltzman and Gergory Smith's Birch Run Capital, and Roberto Mignone's Bridger Management.
Let's go over hedge fund activity in other stocks similar to Nevro Corp (NYSE:NVRO). We will take a look at Advanced Energy Industries, Inc. (NASDAQ:AEIS), Inovalon Holdings Inc (NASDAQ:INOV), Moelis & Company (NYSE:MC), and Northwest Natural Holding Company (NYSE:NWN). This group of stocks' market values match NVRO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEIS,17,149934,2 INOV,9,27824,-4 MC,23,122559,2 NWN,11,68749,1 Average,15,92267,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $512 million in NVRO's case. Moelis & Company (NYSE:MC) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Nevro Corp (NYSE:NVRO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately NVRO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NVRO were disappointed as the stock returned -5.3% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.