Did Hedge Funds Get Nuance Communications Inc. (NUAN) Right?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought Nuance Communications Inc. (NASDAQ:NUAN) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Is Nuance Communications Inc. (NASDAQ:NUAN) worth your attention right now? Investors who are in the know were getting less optimistic. The number of long hedge fund positions shrunk by 11 in recent months. Nuance Communications Inc. (NASDAQ:NUAN) was in 61 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 72. Our calculations also showed that NUAN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 72 hedge funds in our database with NUAN holdings at the end of June.

Matthew Halbower of Pentwater Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a look at the latest hedge fund action regarding Nuance Communications Inc. (NASDAQ:NUAN).

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

At the end of September, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NUAN over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Pentwater Capital Management was the largest shareholder of Nuance Communications Inc. (NASDAQ:NUAN), with a stake worth $966.8 million reported as of the end of September. Trailing Pentwater Capital Management was Millennium Management, which amassed a stake valued at $355.7 million. D E Shaw, Balyasny Asset Management, and Alpine Associates 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 Sand Grove Capital Partners allocated the biggest weight to Nuance Communications Inc. (NASDAQ:NUAN), around 10.51% of its 13F portfolio. Pentwater Capital Management is also relatively very bullish on the stock, earmarking 9.82 percent of its 13F equity portfolio to NUAN.

Since Nuance Communications Inc. (NASDAQ:NUAN) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there were a few fund managers that elected to cut their entire stakes in the third quarter. At the top of the heap, John Smith Clark’s Southpoint Capital Advisors said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $68.1 million in stock, and Scott Ferguson’s Sachem Head Capital was right behind this move, as the fund sold off about $63.5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 11 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). We will take a look at CMS Energy Corporation (NYSE:CMS), Principal Financial Group Inc (NYSE:PFG), Jacobs Engineering Group Inc. (NYSE:J), Lufax Holding Ltd (NYSE:LU), Avery Dennison Corporation (NYSE:AVY), Tata Motors Limited (NYSE:TTM), and Diamondback Energy Inc (NASDAQ:FANG). This group of stocks’ market values resemble NUAN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $4868 million in NUAN’s case. Diamondback Energy Inc (NASDAQ:FANG) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. Our overall hedge fund sentiment score for NUAN is 69.4. 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. 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 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on NUAN as the stock returned 0.4% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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

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