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Were Hedge Funds Right About Fleeing LivaNova PLC (LIVN)?

Reymerlyn Martin

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Is LivaNova PLC (NASDAQ:LIVN) the right pick for your portfolio? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund bets shrunk by 8 lately. Our calculations also showed that LIVN isn't among the 30 most popular stocks among hedge funds.

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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 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.

Arthur B Cohen and Joseph Healey, Healthcor Management LP

We're going to review the fresh hedge fund action encompassing LivaNova PLC (NASDAQ:LIVN).

How have hedgies been trading LivaNova PLC (NASDAQ:LIVN)?

At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in LIVN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

LIVN_apr2019

Among these funds, Point72 Asset Management held the most valuable stake in LivaNova PLC (NASDAQ:LIVN), which was worth $104.5 million at the end of the third quarter. On the second spot was Healthcor Management LP which amassed $79.9 million worth of shares. Moreover, Redmile Group, Renaissance Technologies, and Fisher Asset Management were also bullish on LivaNova PLC (NASDAQ:LIVN), allocating a large percentage of their portfolios to this stock.

Since LivaNova PLC (NASDAQ:LIVN) has faced declining sentiment from the smart money, we can see that there is a sect of funds that slashed their positions entirely heading into Q3. Interestingly, Brian Ashford-Russell and Tim Woolley's Polar Capital said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at about $34.5 million in call options, and Brad Farber's Atika Capital was right behind this move, as the fund cut about $14.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 8 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to LivaNova PLC (NASDAQ:LIVN). These stocks are First Citizens BancShares Inc. (NASDAQ:FCNCA), First Solar, Inc. (NASDAQ:FSLR), GCI Liberty, Inc. (NASDAQ:GLIBA), and Ashland Global Holdings Inc. (NYSE:ASH). This group of stocks' market values are closest to LIVN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCNCA,22,205273,3 FSLR,22,352890,8 GLIBA,37,1382128,1 ASH,37,1143105,5 Average,29.5,770849,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $771 million. That figure was $376 million in LIVN's case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand First Citizens BancShares Inc. (NASDAQ:FCNCA) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks LivaNova PLC (NASDAQ:LIVN) is even less popular than FCNCA. Hedge funds dodged a bullet by taking a bearish stance towards LIVN. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately LIVN wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); LIVN investors were disappointed as the stock returned -27.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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