How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Nordson Corporation (NASDAQ:NDSN).
Nordson Corporation (NASDAQ:NDSN) has experienced an increase in support from the world’s most elite money managers in recent months. Nordson Corporation (NASDAQ:NDSN) was in 26 hedge funds’ portfolios at the end of March. The all time high for this statistic is 29. There were 21 hedge funds in our database with NDSN positions at the end of the fourth quarter. Our calculations also showed that NDSN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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. Now we’re going to view the new hedge fund action regarding Nordson Corporation (NASDAQ:NDSN).
Do Hedge Funds Think NDSN Is A Good Stock To Buy Now?
At first quarter’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in NDSN a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the most valuable position in Nordson Corporation (NASDAQ:NDSN). D E Shaw has a $38 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Joe Milano of Greenhouse Funds, with a $29.2 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Dmitry Balyasny’s Balyasny Asset Management, Cliff Asness’s AQR Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Nordson Corporation (NASDAQ:NDSN), around 3.13% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to NDSN.
As industrywide interest jumped, some big names were breaking ground themselves. Greenhouse Funds, managed by Joe Milano, initiated the largest position in Nordson Corporation (NASDAQ:NDSN). Greenhouse Funds had $29.2 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $7.1 million investment in the stock during the quarter. The following funds were also among the new NDSN investors: Michael Gelband’s ExodusPoint Capital, Renaissance Technologies, and Joel Greenblatt’s Gotham Asset Management.
Let’s check out hedge fund activity in other stocks similar to Nordson Corporation (NASDAQ:NDSN). We will take a look at Tapestry, Inc. (NYSE:TPR), Weibo Corp (NASDAQ:WB), GFL Environmental Inc. (NYSE:GFL), The Interpublic Group of Companies Inc (NYSE:IPG), Avalara, Inc. (NYSE:AVLR), Allegion plc (NYSE:ALLE), and Newell Brands Inc. (NASDAQ:NWL). This group of stocks’ market valuations are similar to NDSN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPR | 50 | 1166145 | 1 |
| WB | 12 | 118275 | -1 |
| GFL | 22 | 561202 | 4 |
| IPG | 29 | 709187 | -9 |
| AVLR | 41 | 994280 | -15 |
| ALLE | 27 | 969085 | 0 |
| NWL | 24 | 1952399 | 1 |
| Average | 29.3 | 924368 | -2.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $924 million. That figure was $180 million in NDSN’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 12 bullish hedge fund positions. Nordson Corporation (NASDAQ:NDSN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NDSN is 55.3. 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 24% in 2021 through July 9th and beat the market by 6.7 percentage points. A small number of hedge funds were also right about betting on NDSN, though not to the same extent, as the stock returned 11.6% since the end of Q1 (through July 9th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.
