Should You Avoid Open Text Corporation (USA) (OTEX)?

Hedge funds are not perfect. They have their bad picks just like everyone else. Micron, a stock hedge funds have loved, lost 50% during the last 12 months ending in October 30. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% in the same time period, vs. a gain of 5.2% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Open Text Corporation (USA) (NASDAQ:OTEX).

Is Open Text Corporation (USA) (NASDAQ:OTEX) the right investment to pursue these days? Prominent investors are selling. The number of bullish hedge fund bets dropped by 1 lately. OTEX was in 18 hedge funds’ portfolios at the end of the third quarter of 2015. There were 19 hedge funds in our database with OTEX holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as The Madison Square Garden Co (NYSE:MSG), Lions Gate Entertainment Corp. (USA) (NYSE:LGF), and Lazard Ltd (NYSE:LAZ) to gather more data points.

Now, let’s go over the new action regarding Open Text Corporation (USA) (NASDAQ:OTEX).

How are hedge funds trading Open Text Corporation (USA) (NASDAQ:OTEX)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the second quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Incline Global Management, managed by Jeff Lignelli, holds the number one position in Open Text Corporation (USA) (NASDAQ:OTEX). Incline Global Management has an $21.1 million position in the stock, comprising 4.6% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, managed by Jim Simons, which holds an $15.3 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Israel Englander’s Millennium Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Judging by the fact that Open Text Corporation (USA) (NASDAQ:OTEX) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that decided to sell off their positions entirely last quarter. It’s worth mentioning that Daniel Bubis’s Tetrem Capital Management sold off the biggest stake of the 700 funds watched by Insider Monkey, totaling about $59.7 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund dropped about $15.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Open Text Corporation (USA) (NASDAQ:OTEX) but similarly valued. These stocks are The Madison Square Garden Co (NYSE:MSG), Lions Gate Entertainment Corp. (USA) (NYSE:LGF), Lazard Ltd (NYSE:LAZ), and OGE Energy Corp. (NYSE:OGE). This group of stocks’ market caps resemble OTEX’s market cap.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $1,081 million. That figure was $96 million in OTEX’s case. Lions Gate Entertainment Corp. (USA) (NYSE:LGF) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Open Text Corporation (USA) (NASDAQ:OTEX) is even less popular than LAZ. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.