Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Novanta Inc. (NASDAQ:NOVT) from the perspective of those elite funds.
Novanta Inc. (NASDAQ:NOVT) investors should be aware of an increase in hedge fund interest recently. NOVT was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 16 hedge funds in our database with NOVT holdings at the end of the previous quarter. Our calculations also showed that novt isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the recent hedge fund action encompassing Novanta Inc. (NASDAQ:NOVT).
How have hedgies been trading Novanta Inc. (NASDAQ:NOVT)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in NOVT at the beginning of this year. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Novanta Inc. (NASDAQ:NOVT), with a stake worth $42.9 million reported as of the end of September. Trailing Renaissance Technologies was Daruma Asset Management, which amassed a stake valued at $36.8 million. AlphaOne Capital Partners, Royce & Associates, and Sandler Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers have jumped into Novanta Inc. (NASDAQ:NOVT) headfirst. Ellington, managed by Mike Vranos, initiated the most outsized position in Novanta Inc. (NASDAQ:NOVT). Ellington had $0.8 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $0.6 million position during the quarter. The other funds with brand new NOVT positions are Michael Platt and William Reeves’s BlueCrest Capital Mgmt., Noam Gottesman’s GLG Partners, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Novanta Inc. (NASDAQ:NOVT) but similarly valued. We will take a look at CenterState Bank Corporation (NASDAQ:CSFL), Cirrus Logic, Inc. (NASDAQ:CRUS), Intrexon Corp (NASDAQ:XON), and PQ Group Holdings Inc. (NYSE:PQG). All of these stocks’ market caps are closest to NOVT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSFL | 19 | 128118 | 0 |
| CRUS | 21 | 259087 | 1 |
| XON | 9 | 99237 | 0 |
| PQG | 9 | 89805 | -1 |
| Average | 14.5 | 144062 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $109 million in NOVT’s case. Cirrus Logic, Inc. (NASDAQ:CRUS) is the most popular stock in this table. On the other hand Intrexon Corp (NASDAQ:XON) is the least popular one with only 9 bullish hedge fund positions. Novanta Inc. (NASDAQ:NOVT) 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 CRUS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
