Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Nuance Communications Inc. (NASDAQ:NUAN) changed recently.
Nuance Communications Inc. (NASDAQ:NUAN) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds' portfolios at the end of June. At the end of this article we will also compare NUAN to other stocks including Prosperity Bancshares, Inc. (NYSE:PB), Clarivate Analytics Plc (NYSE:CCC), and Kirby Corporation (NYSE:KEX) to get a better sense of its popularity. Our calculations also showed that NUAN isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the fresh hedge fund action surrounding Nuance Communications Inc. (NASDAQ:NUAN).
What does smart money think about Nuance Communications Inc. (NASDAQ:NUAN)?
At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in NUAN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Robert G. Moses's RGM Capital has the biggest position in Nuance Communications Inc. (NASDAQ:NUAN), worth close to $96.1 million, corresponding to 6.9% of its total 13F portfolio. On RGM Capital's heels is Glenview Capital, led by Larry Robbins, holding a $94.3 million position; 0.9% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism consist of Peter S. Park's Park West Asset Management, Cynthia Paul's Lynrock Lake and Cliff Asness's AQR Capital Management.
Judging by the fact that Nuance Communications Inc. (NASDAQ:NUAN) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their positions entirely last quarter. It's worth mentioning that Glenn Russell Dubin's Highbridge Capital Management dropped the largest position of the 750 funds tracked by Insider Monkey, worth about $19.9 million in call options. Mike Masters's fund, Masters Capital Management, also dumped its call options, about $14.4 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 now review hedge fund activity in other stocks - not necessarily in the same industry as Nuance Communications Inc. (NASDAQ:NUAN) but similarly valued. These stocks are Prosperity Bancshares, Inc. (NYSE:PB), Clarivate Analytics Plc (NYSE:CCC), Kirby Corporation (NYSE:KEX), and PS Business Parks Inc (NYSE:PSB). All of these stocks' market caps are similar to NUAN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PB,16,107741,7 CCC,21,437169,-1 KEX,23,630317,4 PSB,14,62359,2 Average,18.5,309397,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $309 million. That figure was $529 million in NUAN's case. Kirby Corporation (NYSE:KEX) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NUAN, though not to the same extent, as the stock returned 2.1% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
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