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Was The Smart Money Right About Novo Nordisk A/S (NVO)?

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In this article we will analyze whether Novo Nordisk A/S (NYSE:NVO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Novo Nordisk A/S (NYSE:NVO) going to take off soon? Money managers were cutting their exposure. The number of long hedge fund positions dropped by 3 lately. Novo Nordisk A/S (NYSE:NVO) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistic is 25. Our calculations also showed that NVO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 23 hedge funds in our database with NVO holdings at the end of March.

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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 let's take a look at the key hedge fund action regarding Novo Nordisk A/S (NYSE:NVO).

Do Hedge Funds Think NVO Is A Good Stock To Buy Now?

At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in NVO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NVO A Good Stock To Buy?
Is NVO A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Novo Nordisk A/S (NYSE:NVO). Renaissance Technologies has a $2.0256 billion position in the stock, comprising 2.5% of its 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $1.3472 billion position; 0.8% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions comprise Tom Gayner's Markel Gayner Asset Management, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Novo Nordisk A/S (NYSE:NVO), around 2.53% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, designating 1.15 percent of its 13F equity portfolio to NVO.

Due to the fact that Novo Nordisk A/S (NYSE:NVO) has witnessed falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of hedge funds who sold off their full holdings heading into Q3. It's worth mentioning that Michael Gelband's ExodusPoint Capital said goodbye to the largest position of the 750 funds followed by Insider Monkey, worth an estimated $1.3 million in stock, and Greg Eisner's Engineers Gate Manager was right behind this move, as the fund said goodbye to about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Novo Nordisk A/S (NYSE:NVO) but similarly valued. These stocks are Danaher Corporation (NYSE:DHR), Wells Fargo & Company (NYSE:WFC), Accenture Plc (NYSE:ACN), BHP Group (NYSE:BHP), Shopify Inc (NYSE:SHOP), United Parcel Service, Inc. (NYSE:UPS), and T-Mobile US, Inc. (NYSE:TMUS). This group of stocks' market valuations are similar to NVO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DHR,78,6414646,-3 WFC,94,7083950,-2 ACN,52,3151789,4 BHP,18,752906,0 SHOP,85,13978469,-6 UPS,52,2188804,8 TMUS,100,8020682,2 Average,68.4,5941607,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 68.4 hedge funds with bullish positions and the average amount invested in these stocks was $5942 million. That figure was $3562 million in NVO's case. T-Mobile US, Inc. (NYSE:TMUS) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 bullish hedge fund positions. Novo Nordisk A/S (NYSE:NVO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NVO is 27.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on NVO as the stock returned 36.1% since the end of the second quarter (through 11/5) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.