Should You Buy Nuance Communications Inc. (NUAN)?

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Nuance Communications Inc. (NASDAQ:NUAN).

Nuance Communications Inc. has experienced an increase in activity from the world’s largest hedge funds recently. At the end of this article we will also compare NUAN to other stocks including Tegna Inc (NYSE:TGNA), Tyler Technologies, Inc. (NYSE:TYL), and Community Health Systems (NYSE:CYH) to get a better sense of its popularity.

With all of this in mind, we’re going to take a look at the key action surrounding Nuance Communications Inc. (NASDAQ:NUAN).

How have hedgies been trading Nuance Communications Inc. (NASDAQ:NUAN)?

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Icahn Capital LP, managed by Carl Icahn, holds the number one position in Nuance Communications Inc. (NASDAQ:NUAN). Icahn Capital LP has a $995 million position in the stock, comprising 3.6% of its 13F portfolio. On Icahn Capital LP’s heels is Columbus Circle Investors, with a $69.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other peers that are bullish include Jacob Gottlieb’s Visium Asset Management, Israel Englander’s Millennium Management and Jim Simons’ Renaissance Technologies.

Now, specific money managers were breaking ground themselves. Gotham Asset Management, managed by Joel Greenblatt, assembled the largest position in Nuance Communications Inc. (NASDAQ:NUAN). Gotham Asset Management had $1.4 million invested in the company at the end of the quarter. Cliff Asness’ AQR Capital Management also initiated a $1.2 million position during the quarter. The following funds were also among the new NUAN investors: Ray Dalio’s Bridgewater Associates, David Costen Haley’s HBK Investments, and George Hall’s Clinton Group.

Let’s now review hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). These stocks are Tegna Inc (NYSE:TGNA), Tyler Technologies, Inc. (NYSE:TYL), Community Health Systems (NYSE:CYH), and TFS Financial Corporation (NASDAQ:TFSL). This group of stocks’ market caps are similar to NUAN’s market cap.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $639 million. That figure was $1,154 million in NUAN’s case. Community Health Systems (NYSE:CYH) is the most popular stock in this table. On the other hand Tyler Technologies, Inc. (NYSE:TYL) is the least popular one with only 13 bullish hedge fund positions. Nuance Communications Inc. (NASDAQ:NUAN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CYH might be a better candidate to consider a long position.