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Were Hedge Funds Right About Flocking Into Nuance Communications Inc. (NUAN) ?

Abigail Fisher

"Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value," are the words of Maran Capital's Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Nuance Communications Inc. (NASDAQ:NUAN) and see how it was affected.

Is Nuance Communications Inc. (NASDAQ:NUAN) a bargain? Hedge funds are in a bullish mood. The number of bullish hedge fund bets increased by 15 recently. Our calculations also showed that NUAN isn't among the 30 most popular stocks among hedge funds. NUAN was in 35 hedge funds' portfolios at the end of December. There were 20 hedge funds in our database with NUAN holdings at the end of the previous quarter.

Today there are numerous formulas stock market investors use to analyze their stock investments. Two of the most innovative formulas are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can beat their index-focused peers by a healthy amount (see the details here).

GLENVIEW CAPITAL

We're going to check out the latest hedge fund action surrounding Nuance Communications Inc. (NASDAQ:NUAN).

Hedge fund activity in Nuance Communications Inc. (NASDAQ:NUAN)

At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NUAN over the last 14 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

NUAN_apr2019

Among these funds, Glenview Capital held the most valuable stake in Nuance Communications Inc. (NASDAQ:NUAN), which was worth $79.9 million at the end of the third quarter. On the second spot was RGM Capital which amassed $64 million worth of shares. Moreover, Millennium Management, 12th Street Asset Management, and Fisher Asset Management were also bullish on Nuance Communications Inc. (NASDAQ:NUAN), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Highbridge Capital Management, managed by Glenn Russell Dubin, created the biggest position in Nuance Communications Inc. (NASDAQ:NUAN). Highbridge Capital Management had $14.1 million invested in the company at the end of the quarter. Mike Masters's Masters Capital Management also made a $13.2 million investment in the stock during the quarter. The other funds with brand new NUAN positions are Joel Greenblatt's Gotham Asset Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Benjamin A. Smith's Laurion Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). We will take a look at YY Inc (NASDAQ:YY), DCP Midstream LP (NYSE:DCP), Sea Limited (NYSE:SE), and AU Optronics Corp. (NYSE:AUO). This group of stocks' market values are closest to NUAN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YY,24,149051,-1 DCP,5,18039,0 SE,14,335436,-4 AUO,9,58301,-1 Average,13,140207,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $290 million in NUAN's case. YY Inc (NASDAQ:YY) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on NUAN as the stock returned 26.9% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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