Is NICE Ltd. (NASDAQ:NICE) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is NICE Ltd. (NASDAQ:NICE) a buy, sell, or hold? Money managers are reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 3 in recent months. Our calculations also showed that NICE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Bruce Kovner of Caxton Associates
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the fresh hedge fund action encompassing NICE Ltd. (NASDAQ:NICE).
Hedge fund activity in NICE Ltd. (NASDAQ:NICE)
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the second quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in NICE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in NICE Ltd. (NASDAQ:NICE) was held by RGM Capital, which reported holding $102.6 million worth of stock at the end of September. It was followed by SQN Investors with a $65.5 million position. Other investors bullish on the company included Arrowstreet Capital, Shannon River Fund Management, and McKinley Capital Management. In terms of the portfolio weights assigned to each position SQN Investors allocated the biggest weight to NICE Ltd. (NASDAQ:NICE), around 6.88% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, dishing out 6.83 percent of its 13F equity portfolio to NICE.
Seeing as NICE Ltd. (NASDAQ:NICE) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their full holdings by the end of the third quarter. Intriguingly, Nick Niell’s Arrowgrass Capital Partners sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, worth close to $29.8 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dropped its stock, about $1.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NICE Ltd. (NASDAQ:NICE) but similarly valued. These stocks are Melco Resorts & Entertainment Limited (NASDAQ:MLCO), Teck Resources Ltd (NYSE:TECK), RPM International Inc. (NYSE:RPM), and Bright Horizons Family Solutions Inc (NYSE:BFAM). All of these stocks’ market caps are similar to NICE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MLCO | 24 | 533835 | 2 |
| TECK | 17 | 575085 | -6 |
| RPM | 32 | 410079 | 7 |
| BFAM | 27 | 216673 | 7 |
| Average | 25 | 433918 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $434 million. That figure was $376 million in NICE’s case. RPM International Inc. (NYSE:RPM) is the most popular stock in this table. On the other hand Teck Resources Ltd (NYSE:TECK) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks NICE Ltd. (NASDAQ:NICE) is even less popular than TECK. Hedge funds dodged a bullet by taking a bearish stance towards NICE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NICE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NICE investors were disappointed as the stock returned 5.3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
