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Is Nordson Corporation (NDSN) A Good Stock To Buy?

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Asma UL Husna
·7 min read
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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Nordson Corporation (NASDAQ:NDSN) based on that data and determine whether they were really smart about the stock.

Nordson Corporation (NASDAQ:NDSN) has experienced a decrease in activity from the world's largest hedge funds recently. Nordson Corporation (NASDAQ:NDSN) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. There were 22 hedge funds in our database with NDSN holdings at the end of March. Our calculations also showed that NDSN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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 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 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 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.

Fred DiSanto Ancora Advisors
Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let's take a glance at the latest hedge fund action surrounding Nordson Corporation (NASDAQ:NDSN).

Hedge fund activity in Nordson Corporation (NASDAQ:NDSN)

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in NDSN a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in Nordson Corporation (NASDAQ:NDSN). Royce & Associates has a $13.6 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Columbus Circle Investors, managed by Principal Global Investors, which holds a $13.5 million position; 0.5% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish encompass Joe Milano's Greenhouse Funds, and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Nordson Corporation (NASDAQ:NDSN), around 1.58% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, earmarking 0.54 percent of its 13F equity portfolio to NDSN.

Judging by the fact that Nordson Corporation (NASDAQ:NDSN) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedgies who sold off their entire stakes in the second quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest investment of the 750 funds watched by Insider Monkey, worth an estimated $15.8 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $13 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to Nordson Corporation (NASDAQ:NDSN). These stocks are DraftKings Inc. (NASDAQ:DKNG), PerkinElmer, Inc. (NYSE:PKI), Cloudflare, Inc. (NYSE:NET), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), ABIOMED, Inc. (NASDAQ:ABMD), Pool Corporation (NASDAQ:POOL), and KB Financial Group, Inc. (NYSE:KB). This group of 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 DKNG,53,693614,18 PKI,30,1263237,9 NET,36,456001,12 HZNP,45,2955360,4 ABMD,31,823991,4 POOL,35,492145,2 KB,6,36329,-1 Average,33.7,960097,6.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $960 million. That figure was $68 million in NDSN's case. DraftKings Inc. (NASDAQ:DKNG) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 6 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 overall hedge fund sentiment score for NDSN is 41.7. 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. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately NDSN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NDSN investors were disappointed as the stock returned 1.3% in the third 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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