Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Novadaq Technologies Inc. (NASDAQ:NVDQ).
Novadaq Technologies Inc. (NASDAQ:NVDQ) investors should pay attention to an increase in enthusiasm from smart money lately. There were 8 hedge funds in our database with NVDQ holdings at the end of the second quarter, one less than at the end of September. At the end of this article we will also compare NVDQ to other stocks including Eldorado Resorts Inc (NASDAQ:ERI), Northstar Realty Europe Corp (NYSE:NRE), and New York Mortgage Trust, Inc. (NASDAQ:NYMT) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What does the smart money think about Novadaq Technologies Inc. (NASDAQ:NVDQ)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a 13% gain from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in NVDQ heading into this year, so hedge fund ownership is still down in 2016. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Kevin Kotler’s Broadfin Capital has the largest position in Novadaq Technologies Inc. (NASDAQ:NVDQ), worth close to $59.9 million, amounting to 5.4% of its total 13F portfolio. The second most bullish fund manager is Steve Cohen of Point72 Asset Management, holding a $6.9 million position. Other members of the smart money that are bullish contain Kris Jenner, Gordon Bussard, and Graham McPhail’s Rock Springs Capital Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-micro-cap stocks.
Consequently, specific money managers were leading the bulls’ herd. D E Shaw, one of the biggest hedge funds in the world, initiated the largest position in Novadaq Technologies Inc. (NASDAQ:NVDQ). D E Shaw had $0.7 million invested in the company at the end of the quarter. Adam Usdan’s Trellus Management Company also made a $0.2 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Novadaq Technologies Inc. (NASDAQ:NVDQ) but similarly valued. We will take a look at Eldorado Resorts Inc (NASDAQ:ERI), Northstar Realty Europe Corp (NYSE:NRE), New York Mortgage Trust, Inc. (NASDAQ:NYMT), and Manitowoc Company, Inc. (NYSE:MTW). All of these stocks’ market caps match NVDQ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ERI | 22 | 207294 | 0 |
| NRE | 13 | 152594 | -5 |
| NYMT | 3 | 1860 | 0 |
| MTW | 23 | 169600 | -4 |
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $82 million in NVDQ’s case. Manitowoc Company, Inc. (NYSE:MTW) is the most popular stock in this table. On the other hand New York Mortgage Trust, Inc. (NASDAQ:NYMT) is the least popular one with only 3 bullish hedge fund positions. Novadaq Technologies Inc. (NASDAQ:NVDQ) 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. In this regard MTW might be a better candidate to consider taking a long position in.
Disclosure: None
