Hedge Funds Are Cashing Out Of Nuance Communications Inc. (NUAN)

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Nuance Communications Inc. (NASDAQ:NUAN) makes for a good investment right now.

Is Nuance Communications Inc. (NASDAQ:NUAN) a buy right now? The best stock pickers were taking a bearish view. The number of long hedge fund positions retreated by 3 in recent months. Nuance Communications Inc. (NASDAQ:NUAN) was in 57 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that NUAN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. 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 we’re going to take a glance at the new hedge fund action encompassing Nuance Communications Inc. (NASDAQ:NUAN).

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

At the end of the first quarter, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the fourth quarter of 2020. On the other hand, there were a total of 42 hedge funds with a bullish position in NUAN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Coatue Management, managed by Philippe Laffont, holds the number one position in Nuance Communications Inc. (NASDAQ:NUAN). Coatue Management has a $621.6 million position in the stock, comprising 3.4% of its 13F portfolio. On Coatue Management’s heels is Viking Global, managed by Andreas Halvorsen, which holds a $483.9 million position; 1.4% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions include Lone Pine Capital, Gabriel Plotkin’s Melvin Capital Management and Ricky Sandler’s Eminence Capital. In terms of the portfolio weights assigned to each position Anomaly Capital Management allocated the biggest weight to Nuance Communications Inc. (NASDAQ:NUAN), around 7.95% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, designating 6.86 percent of its 13F equity portfolio to NUAN.

Since Nuance Communications Inc. (NASDAQ:NUAN) has experienced bearish sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds that slashed their positions entirely last quarter. Intriguingly, Principal Global Investors’s Columbus Circle Investors sold off the largest position of all the hedgies monitored by Insider Monkey, valued at about $61.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $40.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds last quarter.

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 W.P. Carey Inc. (NYSE:WPC), NortonLifeLock Inc. (NASDAQ:NLOK), Ceridian HCM Holding Inc. (NYSE:CDAY), Medical Properties Trust, Inc. (NYSE:MPW), Texas Pacific Land Corporation (NYSE:TPL), Sunrun Inc (NASDAQ:RUN), and Canopy Growth Corporation (NASDAQ:CGC). This group of stocks’ market valuations are similar to NUAN’s market valuation.

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As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $1097 million. That figure was $4130 million in NUAN’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NASDAQ:CGC) is the least popular one with only 12 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 80.5. 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 returned 17.2% in 2021 through June 11th but still managed to beat the market by 3.3 percentage points. Hedge funds were also right about betting on NUAN as the stock returned 25.9% since the end of March (through 6/11) 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.