At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Align Technology, Inc. (NASDAQ:ALGN) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Align Technology, Inc. (NASDAQ:ALGN) has seen a decrease in hedge fund sentiment in recent months. ALGN was in 39 hedge funds' portfolios at the end of March. There were 40 hedge funds in our database with ALGN holdings at the end of the previous quarter. Our calculations also showed that ALGN isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
To the average investor there are tons of methods stock market investors can use to value publicly traded companies. A pair of the less known methods are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite money managers can outpace the market by a significant margin (see the details here).
[caption id="attachment_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we're going to take a peek at the fresh hedge fund action surrounding Align Technology, Inc. (NASDAQ:ALGN).
Hedge fund activity in Align Technology, Inc. (NASDAQ:ALGN)
Heading into the second quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALGN over the last 18 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.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the most valuable position in Align Technology, Inc. (NASDAQ:ALGN). Renaissance Technologies has a $511.1 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Bares Capital Management, led by Brian Bares, holding a $269.3 million position; the fund has 9.7% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Lei Zhang's Hillhouse Capital Management, Ken Fisher's Fisher Asset Management and David Gallo's Valinor Management LLC. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Align Technology, Inc. (NASDAQ:ALGN), around 9.71% of its 13F portfolio. Valinor Management LLC is also relatively very bullish on the stock, designating 6.02 percent of its 13F equity portfolio to ALGN.
Judging by the fact that Align Technology, Inc. (NASDAQ:ALGN) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Mitchell Blutt's Consonance Capital Management dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $75.1 million in stock, and Andreas Halvorsen's Viking Global was right behind this move, as the fund dropped about $73.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Align Technology, Inc. (NASDAQ:ALGN) but similarly valued. These stocks are Teleflex Incorporated (NYSE:TFX), Avangrid, Inc. (NYSE:AGR), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and M&T Bank Corporation (NYSE:MTB). This group of stocks' market valuations are closest to ALGN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TFX,32,766334,0 AGR,18,242937,-1 TTWO,66,1949928,7 MTB,21,687380,-11 Average,34.25,911645,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $912 million. That figure was $1397 million in ALGN's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 18 bullish hedge fund positions. Align Technology, Inc. (NASDAQ:ALGN) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ALGN as the stock returned 57.8% in Q2 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.