Is NVO Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Novo Nordisk A/S (NYSE:NVO).

Is NVO stock a buy? Novo Nordisk A/S (NYSE:NVO) investors should be aware of an increase in hedge fund interest recently. Novo Nordisk A/S (NYSE:NVO) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 25. There were 22 hedge funds in our database with NVO positions at the end of the third quarter. Our calculations also showed that NVO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by 124 percentage points since March 2017 (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.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a peek at the latest hedge fund action surrounding Novo Nordisk A/S (NYSE:NVO).

Do Hedge Funds Think NVO Is A Good Stock To Buy Now?

At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NVO over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Renaissance Technologies has the number one position in Novo Nordisk A/S (NYSE:NVO), worth close to $1.8749 billion, accounting for 2% of its total 13F portfolio. The second most bullish fund manager is Fisher Asset Management, led by Ken Fisher, holding a $1.1056 billion position; 0.8% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism contain Tom Gayner’s Markel Gayner Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Novo Nordisk A/S (NYSE:NVO), around 2.04% of its 13F portfolio. One68 Global Capital is also relatively very bullish on the stock, designating 1.18 percent of its 13F equity portfolio to NVO.

Now, some big names were leading the bulls’ herd. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), created the most valuable position in Novo Nordisk A/S (NYSE:NVO). Schonfeld Strategic Advisors had $4.2 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $3.1 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, David Nguyen and Nancy Oh’s One68 Global Capital, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Novo Nordisk A/S (NYSE:NVO) but similarly valued. These stocks are Chevron Corporation (NYSE:CVX), Eli Lilly and Company (NYSE:LLY), McDonald’s Corporation (NYSE:MCD), Unilever PLC (NYSE:UL), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), and SAP SE (NYSE:SAP). This group of stocks’ market values match NVO’s market value.

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As you can see these stocks had an average of 48.7 hedge funds with bullish positions and the average amount invested in these stocks was $3152 million. That figure was $3162 million in NVO’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 14 bullish hedge fund positions. Novo Nordisk A/S (NYSE:NVO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NVO is 40.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately NVO wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); NVO investors were disappointed as the stock returned 5.6% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.