Should I Avoid Nuance Communications Inc. (NUAN)?

In this article we will take a look at whether hedge funds think Nuance Communications Inc. (NASDAQ:NUAN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Nuance Communications Inc. (NASDAQ:NUAN) worth your attention right now? Hedge funds were cutting their exposure. The number of bullish hedge fund bets dropped by 11 recently. Nuance Communications Inc. (NASDAQ:NUAN) was in 61 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 72. Our calculations also showed that NUAN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 72 hedge funds in our database with NUAN positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a look at the recent hedge fund action surrounding Nuance Communications Inc. (NASDAQ:NUAN).

Matthew Halbower of Pentwater Capital

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

At the end of the third quarter, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NUAN over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Nuance Communications Inc. (NASDAQ:NUAN) was held by Pentwater Capital Management, which reported holding $966.8 million worth of stock at the end of September. It was followed by Millennium Management with a $355.7 million position. Other investors bullish on the company included D E Shaw, Balyasny Asset Management, and Alpine Associates. In terms of the portfolio weights assigned to each position Sand Grove Capital Partners allocated the biggest weight to Nuance Communications Inc. (NASDAQ:NUAN), around 10.51% of its 13F portfolio. Pentwater Capital Management is also relatively very bullish on the stock, dishing out 9.82 percent of its 13F equity portfolio to NUAN.

Since Nuance Communications Inc. (NASDAQ:NUAN) has experienced a decline in interest from the smart money, we can see that there were a few money managers who were dropping their full holdings heading into Q4. It’s worth mentioning that John Smith Clark’s Southpoint Capital Advisors dumped the biggest stake of the 750 funds followed by Insider Monkey, comprising about $68.1 million in stock, and Scott Ferguson’s Sachem Head Capital was right behind this move, as the fund said goodbye to about $63.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 11 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). These stocks are CMS Energy Corporation (NYSE:CMS), Principal Financial Group Inc (NASDAQ:PFG), Jacobs Engineering Group Inc. (NYSE:J), Lufax Holding Ltd (NYSE:LU), Avery Dennison Corporation (NYSE:AVY), Tata Motors Limited (NYSE:TTM), and Diamondback Energy Inc (NASDAQ:FANG). This group of stocks’ market valuations resemble NUAN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $4868 million in NUAN’s case. Diamondback Energy Inc (NASDAQ:FANG) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. Our overall hedge fund sentiment score for NUAN is 69.4. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately NUAN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NUAN were disappointed as the stock returned 0.8% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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