There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Align Technology, Inc. (NASDAQ:ALGN).
Align Technology, Inc. (NASDAQ:ALGN) investors should be aware of an increase in activity from the world’s largest hedge funds of late. ALGN was in 41 hedge funds’ portfolios at the end of June. There were 30 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 (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the new hedge fund action regarding Align Technology, Inc. (NASDAQ:ALGN).
How are hedge funds trading Align Technology, Inc. (NASDAQ:ALGN)?
At Q2’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 37% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALGN over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Align Technology, Inc. (NASDAQ:ALGN), which was worth $694.6 million at the end of the second quarter. On the second spot was Viking Global which amassed $317.8 million worth of shares. Moreover, Millennium Management, GLG Partners, and Fisher Asset Management were also bullish on Align Technology, Inc. (NASDAQ:ALGN), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers have jumped into Align Technology, Inc. (NASDAQ:ALGN) headfirst. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, established the most outsized position in Align Technology, Inc. (NASDAQ:ALGN). Healthcor Management LP had $56.2 million invested in the company at the end of the quarter. Jacob Doft’s Highline Capital Management also made a $27.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Matthew Tewksbury’s Stevens Capital Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Align Technology, Inc. (NASDAQ:ALGN) but similarly valued. These stocks are Centene Corp (NYSE:CNC), Mettler-Toledo International Inc. (NYSE:MTD), Imperial Oil Limited (NYSEAMEX:IMO), and McCormick & Company, Incorporated (NYSE:MKC). This group of stocks’ market caps resemble ALGN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNC | 65 | 2992011 | 7 |
| MTD | 20 | 318889 | 2 |
| IMO | 12 | 48343 | -5 |
| MKC | 30 | 214802 | 6 |
| Average | 31.75 | 893511 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $894 million. That figure was $1869 million in ALGN’s case. Centene Corp (NYSE:CNC) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSEAMEX:IMO) is the least popular one with only 12 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ALGN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALGN were disappointed as the stock returned -33.9% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
