Top 5 Stock Picks of Matthew Halbower’s Pentwater Capital Management

2. Nuance Communications Inc. (NASDAQ:NUAN)

Pentwater Capital’s Stake Value: $966 million

Percentage of Pentwater Capital’s 13F Portfolio: 9.82%

Number of Hedge Fund Holders: 60

Nuance Communications Inc. (NASDAQ:NUAN) is a software provider that covers speech recognition and artificial intelligence. Its products allow users to improve patient record-keeping among other users. The company is under acquisition by software giant Microsoft Corporation (NASDAQ:MSFT).

For its fourth fiscal quarter, Nuance Communications Inc. (NASDAQ:NUAN) reported $333 million in revenue and $0.09 in non-GAAP EPS, missing analyst estimates for both. Its price target was reduced to $56 from $60 by Morgan Stanley in May 2021, with the bank sharing pessimism for the Microsoft acquisition.

Pentwater Capital owned 17.5 million Nuance Communications Inc. (NASDAQ:NUAN) shares during Q3 2021. These were worth $966 million and represented 9.82% of its portfolio. Out of 867 hedge funds part of Insider Monkey’s research for the same time period, 60 owned the company’s shares.

After Pentwater Capital, Israel Englander’s Millennium Management is Nuance Communications Inc. (NASDAQ:NUAN)’s largest investor. It owns 6.4 million shares worth $355 million.

Rhizome Partners mentioned Nuance Communications Inc. (NASDAQ:NUAN) in its third-quarter 2021 investor letter, stating that:

“We also exited our small position in Nuance upon Microsoft’s acquisition. Nuance is a leader in voice recognition software, with dominant market share, and its speech-to-text product is the gold standard in radiology. In addition, by eliminating the need for note taking and allowing doctors to focus on patient care, Nuance could transform the way doctors treat patients. We built a 1% position in Nuance after attending its comprehensive investor day. Our view is that if Nuance can successfully grow its voice-recognition software in doctor’s offices, it could be worth multiples of our cost basis. Microsoft’s acquisition eliminated the multi-bagger upside but also partially validates the belief that Nuance is a high-quality technology company. We exited Nuance with a 62% gain in less than a year. This example is representative of the slight adjustments we made to our portfolio construction. We will allocate to small bets on technology and high-growth companies that could increase our exposure to “right tail” upside. Rest assured that our focus is still roughly 50% real estate, 30% high-quality companies trading at cheap multiples of free cash flow, and the rest in investments with the potential for growth and higher upside.”