We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of NovoCure Limited (NASDAQ:NVCR) based on that data.
NovoCure Limited (NASDAQ:NVCR) has seen a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that NVCR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the fresh hedge fund action regarding NovoCure Limited (NASDAQ:NVCR).
How are hedge funds trading NovoCure Limited (NASDAQ:NVCR)?
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NVCR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NovoCure Limited (NASDAQ:NVCR) was held by Renaissance Technologies, which reported holding $188.9 million worth of stock at the end of September. It was followed by Darsana Capital Partners with a $113.8 million position. Other investors bullish on the company included Two Sigma Advisors, Rock Springs Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Darsana Capital Partners allocated the biggest weight to NovoCure Limited (NASDAQ:NVCR), around 3.88% of its 13F portfolio. Courage Capital is also relatively very bullish on the stock, designating 2.55 percent of its 13F equity portfolio to NVCR.
Since NovoCure Limited (NASDAQ:NVCR) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers that decided to sell off their entire stakes last quarter. Intriguingly, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $1.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $1.6 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to NovoCure Limited (NASDAQ:NVCR). We will take a look at News Corp (NASDAQ:NWSA), Gerdau SA (NYSE:GGB), Credit Acceptance Corp. (NASDAQ:CACC), and Lear Corporation (NYSE:LEA). This group of stocks’ market valuations resemble NVCR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWSA | 26 | 511464 | -7 |
| GGB | 7 | 165960 | -2 |
| CACC | 31 | 948045 | 6 |
| LEA | 29 | 1007450 | -10 |
| Average | 23.25 | 658230 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $658 million. That figure was $451 million in NVCR’s case. Credit Acceptance Corp. (NASDAQ:CACC) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 7 bullish hedge fund positions. NovoCure Limited (NASDAQ:NVCR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NVCR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NVCR investors were disappointed as the stock returned -29.3% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
