Does Nuance Communications Inc. (NASDAQ:NUAN) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Nuance Communications Inc. (NASDAQ:NUAN) shareholders have witnessed a decrease in hedge fund interest of late. NUAN was in 28 hedge funds’ portfolios at the end of the first quarter of 2019. There were 35 hedge funds in our database with NUAN positions at the end of the previous quarter. Our calculations also showed that nuan 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 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to take a look at the latest hedge fund action regarding Nuance Communications Inc. (NASDAQ:NUAN).
How are hedge funds trading Nuance Communications Inc. (NASDAQ:NUAN)?
At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NUAN over the last 15 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, RGM Capital was the largest shareholder of Nuance Communications Inc. (NASDAQ:NUAN), with a stake worth $96.7 million reported as of the end of March. Trailing RGM Capital was Glenview Capital, which amassed a stake valued at $89.3 million. Park West Asset Management, GLG Partners, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Nuance Communications Inc. (NASDAQ:NUAN) has witnessed a decline in interest from the smart money, logic holds that there was a specific group of hedgies who sold off their entire stakes heading into Q3. Intriguingly, Benjamin A. Smith’s Laurion Capital Management said goodbye to the largest position of all the hedgies watched by Insider Monkey, comprising close to $7.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $5.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds heading into Q3.
Let’s go over hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). These stocks are Prosperity Bancshares, Inc. (NYSE:PB), 51job, Inc. (NASDAQ:JOBS), Empire State Realty Trust Inc (NYSE:ESRT), and nVent Electric plc (NYSE:NVT). This group of stocks’ market valuations match NUAN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PB | 9 | 103636 | 0 |
| JOBS | 12 | 29384 | -1 |
| ESRT | 14 | 161856 | 1 |
| NVT | 25 | 920355 | -3 |
| Average | 15 | 303808 | -0.75 |
View table here if you experience formatting issues.
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 $304 million. That figure was $460 million in NUAN’s case. nVent Electric plc (NYSE:NVT) is the most popular stock in this table. On the other hand Prosperity Bancshares, Inc. (NYSE:PB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on NUAN, though not to the same extent, as the stock returned 1.4% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
