Should You Follow the Smart Money Back Into Oil States International, Inc. (OIS)?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Oil States International, Inc. (NYSE:OIS) was in 18 hedge funds’ portfolios at the end of the third quarter of 2016. OIS has seen an increase in enthusiasm from smart money in recent months. There were 12 hedge funds in our database with OIS holdings at the end of the previous quarter. At the end of this article we will also compare OIS to other stocks including Federal-Mogul Corporation (NASDAQ:FDML), Halyard Health Inc (NYSE:HYH), and Stillwater Mining Company (NYSE:SWC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What have hedge funds been doing with Oil States International, Inc. (NYSE:OIS)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a 50% jump from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in OIS heading into this year, so positions are flat in 2016 through the end of September. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the number one position in Oil States International, Inc. (NYSE:OIS), worth close to $22.2 million. Sitting at the No. 2 spot is Point72 Asset Management, led by Steve Cohen, which holds a $9.9 million position. Other members of the smart money that are bullish contain Chuck Royce’s Royce & Associates, Cliff Asness’ AQR Capital Management, and Vince Maddi and Shawn Brennan’s SIR Capital Management. We should note that SIR Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As industry-wide interest jumped, specific money managers have jumped into Oil States International, Inc. (NYSE:OIS) headfirst. Point72 Asset Management initiated the most outsized position in Oil States International, Inc. (NYSE:OIS). Ken Griffin’s Citadel Investment Group also initiated a $5.2 million position during the quarter. The other funds with brand new OIS positions are Jim Simons’ Renaissance Technologies, David Costen Haley’s HBK Investments, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Oil States International, Inc. (NYSE:OIS) but similarly valued. These stocks are Federal-Mogul Corporation (NASDAQ:FDML), Halyard Health Inc (NYSE:HYH), Stillwater Mining Company (NYSE:SWC), and Diebold Incorporated (NYSE:DBD). This group of stocks’ market valuations are closest to OIS’s market valuation.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $528 million. That figure was $79 million in OIS’s case. Halyard Health Inc (NYSE:HYH) is the most popular stock in this table. On the other hand Federal-Mogul Corporation (NASDAQ:FDML) is the least popular one with only 8 bullish hedge fund positions. Oil States International, Inc. (NYSE:OIS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HYH might be a better candidate to consider taking a long position in.

Disclosure: None