Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Varex Imaging Corporation (NASDAQ:VREX) based on that data.
Is VREX a good stock to buy now? The best stock pickers were turning less bullish. The number of long hedge fund positions went down by 3 in recent months. Varex Imaging Corporation (NASDAQ:VREX) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that VREX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 22 hedge funds in our database with VREX holdings at the end of June.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Rudolph Kluiber of GRT Capital Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's review the new hedge fund action encompassing Varex Imaging Corporation (NASDAQ:VREX).
Do Hedge Funds Think VREX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VREX over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Varex Imaging Corporation (NASDAQ:VREX), which was worth $20.6 million at the end of the third quarter. On the second spot was Fairpointe Capital which amassed $7.2 million worth of shares. Royce & Associates, Rutabaga Capital Management, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Varex Imaging Corporation (NASDAQ:VREX), around 2.63% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 1.15 percent of its 13F equity portfolio to VREX.
Since Varex Imaging Corporation (NASDAQ:VREX) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedge funds who were dropping their full holdings in the third quarter. At the top of the heap, Israel Englander's Millennium Management dumped the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $6.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $1.1 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Varex Imaging Corporation (NASDAQ:VREX) but similarly valued. We will take a look at Northern Dynasty Minerals Ltd. (NYSE:NAK), NOW Inc (NYSE:DNOW), A10 Networks Inc (NYSE:ATEN), Stoneridge, Inc. (NYSE:SRI), Transocean Ltd (NYSE:RIG), Bryn Mawr Bank Corp. (NASDAQ:BMTC), and Ichor Holdings Ltd. (NASDAQ:ICHR). This group of stocks' market caps match VREX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NAK,7,22223,-3 DNOW,22,74626,10 ATEN,26,109582,4 SRI,10,43915,1 RIG,17,24838,-4 BMTC,13,31872,1 ICHR,13,32135,-3 Average,15.4,48456,0.9 [/table]
As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $51 million in VREX's case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand Northern Dynasty Minerals Ltd. (NYSE:NAK) is the least popular one with only 7 bullish hedge fund positions. Varex Imaging Corporation (NASDAQ:VREX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VREX is 59.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on VREX as the stock returned 27.8% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Get real-time email alerts: Follow Varex Imaging Corp (NASDAQ:VREX)
Disclosure: None. This article was originally published at Insider Monkey.
