Do Hedge Funds Love Align Technology, Inc. (ALGN)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Align Technology, Inc. (NASDAQ:ALGN) in this article.

Align Technology, Inc. (NASDAQ:ALGN) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. Align Technology, Inc. (NASDAQ:ALGN) was in 49 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 57. There were 57 hedge funds in our database with ALGN positions at the end of the second quarter. Our calculations also showed that ALGN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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. Now let’s analyze the key hedge fund action encompassing Align Technology, Inc. (NASDAQ:ALGN).

Philip Hempleman of Ardsley Partners

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

At third quarter’s end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. By comparison, 47 hedge funds held shares or bullish call options in ALGN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Align Technology, Inc. (NASDAQ:ALGN) was held by Bares Capital Management, which reported holding $368.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $288.4 million position. Other investors bullish on the company included Arrowstreet Capital, Melvin Capital Management, and Hitchwood Capital Management. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Align Technology, Inc. (NASDAQ:ALGN), around 6.61% of its 13F portfolio. Hitchwood Capital Management is also relatively very bullish on the stock, designating 3.84 percent of its 13F equity portfolio to ALGN.

Since Align Technology, Inc. (NASDAQ:ALGN) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of money managers that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Gabriel Plotkin’s Melvin Capital Management sold off the largest stake of the 750 funds monitored by Insider Monkey, valued at about $213.9 million in stock. Renaissance Technologies, also sold off its stock, about $38.7 million worth. These moves are important to note, as total hedge fund interest was cut by 8 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Align Technology, Inc. (NASDAQ:ALGN). We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), Public Storage (NYSE:PSA), NXP Semiconductors NV (NASDAQ:NXPI), Ferrari N.V. (NYSE:RACE), Itau Unibanco Holding SA (NYSE:ITUB), Takeda Pharmaceutical Company Limited (NYSE:TAK), and Prudential Public Limited Company (NYSE:PUK). This group of stocks’ market valuations match ALGN’s market valuation.

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As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $2263 million in ALGN’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 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. Our overall hedge fund sentiment score for ALGN is 70.7. 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 positive signal but 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately ALGN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ALGN were disappointed as the stock returned -8.1% since the end of September (through 11/30) 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 many of these stocks already outperformed the market since 2019.

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