Were Hedge Funds Right About Ditching NuVasive, Inc. (NUVA)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNuVasive, Inc. (NASDAQ:NUVA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is NuVasive, Inc. (NASDAQ:NUVA) a bargain? Investors who are in the know were turning less bullish. The number of long hedge fund bets dropped by 2 in recent months. Our calculations also showed that NUVA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s review the new hedge fund action encompassing NuVasive, Inc. (NASDAQ:NUVA).

What does smart money think about NuVasive, Inc. (NASDAQ:NUVA)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in NUVA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the number one position in NuVasive, Inc. (NASDAQ:NUVA), worth close to $63.6 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $51.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Aristeia Capital allocated the biggest weight to NuVasive, Inc. (NASDAQ:NUVA), around 0.19% of its 13F portfolio. BlueCrest Capital Mgmt. is also relatively very bullish on the stock, setting aside 0.18 percent of its 13F equity portfolio to NUVA.

Because NuVasive, Inc. (NASDAQ:NUVA) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that slashed their entire stakes in the first quarter. At the top of the heap, Michael Hintze’s CQS Cayman LP cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $33.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $20 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to NuVasive, Inc. (NASDAQ:NUVA). These stocks are VEON Ltd. (NASDAQ:VEON), ANGI Homeservices Inc (NASDAQ:ANGI), Marathon Oil Corporation (NYSE:MRO), and World Wrestling Entertainment, Inc. (NYSE:WWE). This group of stocks’ market caps match NUVA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $206 million in NUVA’s case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 8 bullish hedge fund positions. NuVasive, Inc. (NASDAQ:NUVA) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately NUVA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NUVA were disappointed as the stock returned 9.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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