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Were Hedge Funds Right About Selling Onto Innovation Inc. (ONTO)?

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As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Onto Innovation Inc. (NYSE:ONTO).

Is Onto Innovation Inc. (NYSE:ONTO) the right investment to pursue these days? Investors who are in the know were getting less optimistic. The number of long hedge fund positions shrunk by 1 recently. Onto Innovation Inc. (NYSE:ONTO) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 19. Our calculations also showed that ONTO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the eyes of most market participants, hedge funds are viewed as slow, old investment vehicles of the past. While there are over 8000 funds trading today, We look at the aristocrats of this group, around 850 funds. Most estimates calculate that this group of people direct the lion's share of all hedge funds' total asset base, and by following their finest equity investments, Insider Monkey has come up with many investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Billionaire David Siegel's Top 10 Stock Picks
Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 view the new hedge fund action encompassing Onto Innovation Inc. (NYSE:ONTO).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ONTO over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ONTO A Good Stock To Buy?
Is ONTO A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Onto Innovation Inc. (NYSE:ONTO), with a stake worth $70.7 million reported as of the end of March. Trailing Fisher Asset Management was Noked Capital, which amassed a stake valued at $67.6 million. Royce & Associates, Renaissance Technologies, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Noked Capital allocated the biggest weight to Onto Innovation Inc. (NYSE:ONTO), around 22.04% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, earmarking 2.84 percent of its 13F equity portfolio to ONTO.

Since Onto Innovation Inc. (NYSE:ONTO) has faced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that slashed their entire stakes last quarter. Interestingly, Ken Griffin's Citadel Investment Group dumped the biggest investment of all the hedgies followed by Insider Monkey, worth close to $7.3 million in stock. D. E. Shaw's fund, D E Shaw, also said goodbye to its stock, about $0.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Onto Innovation Inc. (NYSE:ONTO) but similarly valued. These stocks are Terex Corporation (NYSE:TEX), Brookfield Business Partners L.P. (NYSE:BBU), Danimer Scientific, Inc. (NYSE:DNMR), Werner Enterprises, Inc. (NASDAQ:WERN), Simmons First National Corporation (NASDAQ:SFNC), Hilton Grand Vacations Inc. (NYSE:HGV), and Old National Bancorp (NYSE:ONB). All of these stocks' market caps match ONTO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEX,31,501779,8 BBU,3,6237,0 DNMR,30,533383,12 WERN,21,213603,-3 SFNC,12,22164,6 HGV,34,783198,3 ONB,17,50718,6 Average,21.1,301583,4.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $297 million in ONTO's case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 3 bullish hedge fund positions. Onto Innovation Inc. (NYSE:ONTO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ONTO is 56.6. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately ONTO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ONTO investors were disappointed as the stock returned 2.3% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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