“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards NICE Ltd. (NASDAQ:NICE) and see how it was affected.
Is NICE Ltd. (NASDAQ:NICE) a bargain? Investors who are in the know are taking a bullish view. The number of long hedge fund bets advanced by 1 recently. Our calculations also showed that nice 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 analyze the fresh hedge fund action regarding NICE Ltd. (NASDAQ:NICE).
What have hedge funds been doing with NICE Ltd. (NASDAQ:NICE)?
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in NICE heading into this year. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in NICE Ltd. (NASDAQ:NICE) was held by Arrowstreet Capital, which reported holding $85 million worth of stock at the end of September. It was followed by HMI Capital with a $59.6 million position. Other investors bullish on the company included Arrowgrass Capital Partners, Fisher Asset Management, and Renaissance Technologies.
Consequently, some big names were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most outsized position in NICE Ltd. (NASDAQ:NICE). PEAK6 Capital Management had $1.2 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates LP also made a $0.5 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks similar to NICE Ltd. (NASDAQ:NICE). These stocks are TIM Participacoes SA (NYSE:TSU), Tripadvisor Inc (NASDAQ:TRIP), Vereit Inc (NYSE:VER), and AMERCO (NASDAQ:UHAL). All of these stocks’ market caps are similar to NICE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSU | 16 | 265730 | 3 |
| TRIP | 26 | 1449961 | 0 |
| VER | 22 | 491655 | -3 |
| UHAL | 8 | 409239 | 0 |
| Average | 18 | 654146 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $200 million in NICE’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand AMERCO (NASDAQ:UHAL) is the least popular one with only 8 bullish hedge fund positions. NICE Ltd. (NASDAQ:NICE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TRIP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
