Is Align Technology, Inc. (ALGN) A Good Stock To Buy?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. The second half of 2015 and the first few months of this year was a stressful period for hedge funds. However, things have been taking a turn for the better in the second half of this year. Small-cap stocks which hedge funds are usually overweight outperformed the market by double digits and it may be a good time to pay attention to hedge funds’ picks before it is too late. In this article we are going to analyze the hedge fund sentiment towards Align Technology, Inc. (NASDAQ:ALGN) to find out whether it was one of their high conviction long-term ideas.

Align Technology, Inc. (NASDAQ:ALGN) investors should be aware of an increase in hedge fund interest lately. At the end of this article we will also compare ALGN to other stocks including CIT Group Inc. (NYSE:CIT), Lamar Advertising Co (NASDAQ:LAMR), and Signet Jewelers Ltd. (NYSE:SIG) 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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Keeping this in mind, let’s view the latest action surrounding Align Technology, Inc. (NASDAQ:ALGN).

How have hedgies been trading Align Technology, Inc. (NASDAQ:ALGN)?

Heading into the fourth quarter of 2016, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 42% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Stephen Mandel’s Lone Pine Capital has the biggest position in Align Technology, Inc. (NASDAQ:ALGN), worth close to $228.5 million, comprising 1% of its total 13F portfolio. Sitting at the No. 2 spot is Jim Simons’ Renaissance Technologies holding an $88.5 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Principal Global Investors’s Columbus Circle Investors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management.

Now, key hedge funds have jumped into Align Technology, Inc. (NASDAQ:ALGN) headfirst. Lone Pine Capital, assembled the biggest position in Align Technology, Inc. (NASDAQ:ALGN) having $228.5 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also initiated a $6.4 million position during the quarter. The other funds with brand new ALGN positions are Louis Navellier’s Navellier & Associates, Benjamin A. Smith’s Laurion Capital Management, and Ken Griffin’s Citadel Investment Group.

Let’s now review hedge fund activity in other stocks similar to Align Technology, Inc. (NASDAQ:ALGN). These stocks are CIT Group Inc. (NYSE:CIT), Lamar Advertising Co (NASDAQ:LAMR), Signet Jewelers Ltd. (NYSE:SIG), and BorgWarner Inc. (NYSE:BWA). This group of stocks’ market values are closest to ALGN’s market value.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1.06 billion. That figure was $589 million in ALGN’s case. Signet Jewelers Ltd. (NYSE:SIG) is the most popular stock in this table. On the other hand Lamar Advertising Co (NASDAQ:LAMR) is the least popular one with only 22 bullish hedge fund positions. Align Technology, Inc. (NASDAQ:ALGN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SIG might be a better candidate to consider a long position.

Disclosure: none.