Should You Buy Nordson Corporation (NDSN)?

The worries about the economic slowdown in China and the ongoing uncertainty about the path of interest-rate increases triggered several waves of equity sell-offs during the third quarter. Of course, most hedge funds and other asset managers had to stomach substantial losses during the bloody three-month period, which might have caused some to consider fleeing the U.S. equity markets. Interestingly, smaller-cap stocks registered higher losses than large-capitalization stocks during the September quarter, suggesting that institutional investors heavily discarded seemingly riskier equities amid high uncertainty and turmoil. In fact, the Russell 2000 Index lost 11.9% in the third quarter, while the Standard and Poor’s 500 benchmark declined a mere 6.4%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Nordson Corporation (NASDAQ:NDSN).

Nordson Corporation (NASDAQ:NDSN) has seen an increase in enthusiasm from smart money of late. At the end of this article we will also compare NDSN to other stocks, including DST Systems, Inc. (NYSE:DST), MSC Industrial Direct Co Inc (NYSE:MSM), and Cinemark Holdings, Inc. (NYSE:CNK) to get a better sense of its popularity.

To most traders, hedge funds are assumed to be worthless, old investment vehicles of the past. While there are more than 8000 funds trading at the moment, Our researchers look at the crème de la crème of this group, around 700 funds. Most estimates calculate that this group of people administer the majority of all hedge funds’ total asset base, and by shadowing their highest performing picks, Insider Monkey has deciphered several investment strategies that have historically outpaced Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, we’re going to analyze the latest action encompassing Nordson Corporation (NASDAQ:NDSN).

How are hedge funds trading Nordson Corporation (NASDAQ:NDSN)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a surge of 70% from the second quarter. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the most valuable position in Nordson Corporation (NASDAQ:NDSN), worth close to $30.1 million, corresponding to 0.2% of its total 13F portfolio. On Royce & Associates’s heels is Echo Street Capital Management, managed by Greg Poole, which holds a $14.9 million stake; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Michael Platt and William Reeves’s BlueCrest Capital Mgmt. and Mario Gabelli’s GAMCO Investors.

Consequently, specific money managers were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, established the most valuable position in Nordson Corporation (NASDAQ:NDSN). The fund had $14.9 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also initiated a $3.1 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Joel Greenblatt’s Gotham Asset Management, and Peter Muller’s PDT Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Nordson Corporation (NASDAQ:NDSN) but similarly valued. We will take a look at DST Systems, Inc. (NYSE:DST), MSC Industrial Direct Co Inc (NYSE:MSM), Cinemark Holdings, Inc. (NYSE:CNK), and Amsurg Corp (NASDAQ:AMSG). This group of stocks’ market caps are closest to NDSN’s market cap.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure is just $73 million in NDSN’s case. DST Systems, Inc. (NYSE:DST) is the most popular stock in this table, while Cinemark Holdings, Inc. (NYSE:CNK) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Nordson Corporation (NASDAQ:NDSN) is even less popular than CNK. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.