Is Novo Nordisk A/S (NVO) A Good Stock To Buy?

Nina Todic

Wed, Oct 9, 2019, 6:12 PM

Is Novo Nordisk A/S (NYSE:NVO) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Novo Nordisk A/S (NYSE:NVO) ready to rally soon? Prominent investors are reducing their bets on the stock. The number of long hedge fund bets went down by 8 in recent months. Our calculations also showed that NVO isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article). NVO was in 17 hedge funds' portfolios at the end of the second quarter of 2019. There were 25 hedge funds in our database with NVO holdings at the end of the previous quarter.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the key hedge fund action encompassing Novo Nordisk A/S (NYSE:NVO).

How are hedge funds trading Novo Nordisk A/S (NYSE:NVO)?

At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in NVO a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Novo Nordisk A/S (NYSE:NVO), with a stake worth $1149.5 million reported as of the end of March. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $760.6 million. Arrowstreet Capital, Adage Capital Management, and Markel Gayner Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Novo Nordisk A/S (NYSE:NVO) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few money managers who were dropping their positions entirely last quarter. Intriguingly, Steve Cohen's Point72 Asset Management dropped the largest investment of all the hedgies tracked by Insider Monkey, worth about $43.5 million in stock, and Bain Capital's Brookside Capital was right behind this move, as the fund dumped about $13.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 8 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Novo Nordisk A/S (NYSE:NVO). These stocks are Union Pacific Corporation (NYSE:UNP), Thermo Fisher Scientific Inc. (NYSE:TMO), Accenture Plc (NYSE:ACN), and salesforce.com, inc. (NYSE:CRM). This group of stocks' market values are similar to NVO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNP,64,5598478,10 TMO,72,4141477,4 ACN,38,1028621,-2 CRM,82,5803927,-11 Average,64,4143126,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 64 hedge funds with bullish positions and the average amount invested in these stocks was $4143 million. That figure was $2402 million in NVO's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Accenture Plc (NYSE:ACN) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Novo Nordisk A/S (NYSE:NVO) is even less popular than ACN. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on NVO, though not to the same extent, as the stock returned 2.2% during the third quarter and outperformed the market as well.