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Did Hedge Funds Make The Right Call On Olin Corporation (OLN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtOlin Corporation (NYSE:OLN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Olin Corporation (NYSE:OLN) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Simply Good Foods Company (NASDAQ:SMPL), SVMK Inc. (NASDAQ:SVMK), and Greif, Inc. (NYSE:GEF) to gather more data points. Our calculations also showed that OLN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Scott Ferguson Sachem Head Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s view the key hedge fund action encompassing Olin Corporation (NYSE:OLN).

How have hedgies been trading Olin Corporation (NYSE:OLN)?

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in OLN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is OLN A Good Stock To Buy?

More specifically, Sachem Head Capital was the largest shareholder of Olin Corporation (NYSE:OLN), with a stake worth $174.5 million reported as of the end of September. Trailing Sachem Head Capital was Adage Capital Management, which amassed a stake valued at $83.7 million. Pzena Investment Management, East Side Capital (RR Partners), and Samlyn Capital 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 Sachem Head Capital allocated the biggest weight to Olin Corporation (NYSE:OLN), around 16.95% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, earmarking 11.03 percent of its 13F equity portfolio to OLN.

Because Olin Corporation (NYSE:OLN) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies who were dropping their full holdings by the end of the first quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the largest investment of the 750 funds watched by Insider Monkey, valued at an estimated $8.5 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund sold off about $8.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Olin Corporation (NYSE:OLN) but similarly valued. These stocks are The Simply Good Foods Company (NASDAQ:SMPL), SVMK Inc. (NASDAQ:SVMK), Greif, Inc. (NYSE:GEF), and Prestige Consumer Healthcare Inc. (NYSE:PBH). This group of stocks’ market valuations resemble OLN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMPL 19 152168 -15
SVMK 29 211973 -2
GEF 17 64067 -1
PBH 17 86125 3
Average 20.5 128583 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $432 million in OLN’s case. SVMK Inc. (NASDAQ:SVMK) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Olin Corporation (NYSE:OLN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately OLN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on OLN were disappointed as the stock returned 0.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.