Ocwen Financial Corporation (NYSE:OCN) shares are currently plummeting, down over 28% from yesterday, after the firm reported a significantly lower profit for the second quarter compared to the same period last year. For the second quarter, Ocwen Financial reported earning $10 million, or $0.08 per share, down from $67 million, or $0.48 per share, during the prior-year quarter. In the first quarter of 2015, the firm reported net income of $34.4 million, or $0.27 per share. The firm also reported $463 million in revenues, down 16% year-over-year.
Nonetheless, Ocwen Financial Corporation (NYSE:OCN) President and CEO Ron Faris remains upbeat. He said in a statement that the firm’s “efforts to build out a strong ‘bank-like’ risk and compliance infrastructure are taking hold.” He highlighted that they are still profitable and generating strong operating cash flow. The firm sold its $45 billion mortgage servicing rights from Ocwen Loan Servicing to JPMorgan Chase & Co. (JPM).
Despite the narrower profit in the second quarter, hedge funds appear to be excited about Ocwen Financial Corporation (NYSE:OCN). At the end of the first quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long in this stock, up from 31 one quarter earlier. Furthermore, while the 34.45% quarter-over-quarter decline in total hedge fund investment in the first quarter, to $402.34 million, may be viewed as a very bearish sign on the surface, it’s important to note that the stock declined by a whopping 45.36% in value during the quarter. This means hedge funds actually put more money into Ocwen in the first quarter, which was certainly the right call, as the stock went up by 23.64% in the second quarter. Of note is Michael Blitzer’s Kingstown Capital Management’s substantial bet on Ocwen Financial in the first quarter, as the firm bought 12 million shares worth about $99 million in said quarter, making the stock the largest stake in its entire portfolio.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 123% and beating the market by more than 66 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
Bearing all of this in mind, let’s go over the latest key hedge fund activity concerning Ocwen Financial Corporation.