Analyst updates can often have a big impact on the stock’s performance, which is why they are always on the radars. Analysts employ a complex and detailed analysis regarding each stock and investors follow their advice closely. However, often the ratings and price targets can vary and it’s hard to make up your mind regarding a company. One of the solutions is to follow the consensus of analysts. Another way to find opportunities on the stock markets is to follow the hedge fund sentiment. Hedge funds also use analysts’ opinions in evaluating stocks, but they also employ their own resources.
We think that the hedge fund sentiment is an important metric based on our empirical analysis of hedge funds’ equity portfolios between 1999 and 2012. Our research has shown that hedge funds’ 50 most popular picks, represented mainly by large- and mega-cap companies, undeperformed the market on average by seven basis points per month. On the other hand, top small-cap picks of these investors generated returns that beat the market by almost one percentage point per month on average in backtests. Based on these results, we have developed a small-cap strategy that involves imitating a portfolio of 15 most popular companies among a pool of over 700 hedge funds. Since it went live in August 2012, this strategy has returned 118% and outperformed the S&P 500 ETF (SPY) by some 60 percentage points (see more details here).
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With this in mind, let’s see what the hedge fund sentiment says about three stocks that have been upgraded by analysts earlier today. On the first spot in our list is Oracle Corporation (NYSE:ORCL), whose stock has inched up by 1% so far today, after SunTrust upgraded it to ‘Buy’ from ‘Neutral’ and raised the price target to $48.00 from $38.00. Among the funds from our database, Oracle is a popular company, although we can’t definitively say that they are overweight the stock, since they held less than 5% of its outstanding stock at the end of June. In the latest round of 13F filings, 58 investors reported long positions in Oracle Corporation (NYSE:ORCL) with an aggregate value of $7.79 billion as of the end of June, down from 59 funds holding $8.71 billion worth of stock a quarter earlier. A closer look at our data shows that the top shareholders of Oracle in our database have allocated substantial portions of their equity portfolios to the holdings. More specifically, Boykin Curry‘s Eagle Capital Management and First Eagle Investment Management reported ownership of 42.44 million shares and 38.11 million shares of Oracle Corporation (NYSE:ORCL) in their latest 13Fs respectively. The positions are worth $1.70 billion and $1.54 billion and represent respectively 6.70% and 3.70% of Eagle Capital’s and First Eagle’s equity portfolios.
