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 Envista Holdings Corporation (NYSE:NVST)? The smart money sentiment can provide an answer to this question.
Is NVST a good stock to buy now? The smart money was cutting their exposure. The number of long hedge fund positions decreased by 1 lately. Envista Holdings Corporation (NYSE:NVST) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 42. Our calculations also showed that NVST isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let's take a look at the new hedge fund action regarding Envista Holdings Corporation (NYSE:NVST).
Do Hedge Funds Think NVST Is A Good Stock To Buy Now?
At third quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NVST over the last 21 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Envista Holdings Corporation (NYSE:NVST) was held by Ariel Investments, which reported holding $170.1 million worth of stock at the end of September. It was followed by Paradice Investment Management with a $68.3 million position. Other investors bullish on the company included Balyasny Asset Management, Polar Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to Envista Holdings Corporation (NYSE:NVST), around 4.95% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, earmarking 2.47 percent of its 13F equity portfolio to NVST.
Because Envista Holdings Corporation (NYSE:NVST) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of fund managers that slashed their full holdings in the third quarter. Interestingly, Andreas Halvorsen's Viking Global cut the largest investment of the "upper crust" of funds followed by Insider Monkey, worth about $95.4 million in stock, and Jeffrey Gates's Gates Capital Management was right behind this move, as the fund sold off about $10.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Envista Holdings Corporation (NYSE:NVST). We will take a look at Nextera Energy Partners LP (NYSE:NEP), Graphic Packaging Holding Company (NYSE:GPK), NovaGold Resources Inc. (NYSE:NG), Lattice Semiconductor Corporation (NASDAQ:LSCC), TFI International Inc. (NYSE:TFII), Gildan Activewear Inc (NYSE:GIL), and CAE, Inc. (NYSE:CAE). This group of stocks' market valuations are similar to NVST's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEP,22,217720,1 GPK,30,311941,-2 NG,19,466079,-4 LSCC,24,135268,5 TFII,13,116787,3 GIL,18,522441,-4 CAE,12,88171,-2 Average,19.7,265487,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $418 million in NVST's case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 12 bullish hedge fund positions. Envista Holdings Corporation (NYSE:NVST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVST is 40.5. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on NVST as the stock returned 24.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.