Did Hedge Funds Make The Right Call On Omega Healthcare Investors Inc (OHI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Omega Healthcare Investors Inc (NYSE:OHI) and determine whether the smart money was really smart about this stock.

Is Omega Healthcare Investors Inc (NYSE:OHI) a healthy stock for your portfolio? The smart money was getting less bullish. The number of long hedge fund bets dropped by 1 lately. Our calculations also showed that OHI 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). OHI was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with OHI holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to review the latest hedge fund action regarding Omega Healthcare Investors Inc (NYSE:OHI).

What does smart money think about Omega Healthcare Investors Inc (NYSE:OHI)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in OHI over the last 18 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is OHI A Good Stock To Buy?

Among these funds, Healthcor Management LP held the most valuable stake in Omega Healthcare Investors Inc (NYSE:OHI), which was worth $54.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $51.7 million worth of shares. Two Sigma Advisors, D E Shaw, and Arrowstreet 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 Healthcor Management LP allocated the biggest weight to Omega Healthcare Investors Inc (NYSE:OHI), around 2.31% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, designating 0.09 percent of its 13F equity portfolio to OHI.

Judging by the fact that Omega Healthcare Investors Inc (NYSE:OHI) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few funds who were dropping their entire stakes in the first quarter. At the top of the heap, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $4.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $4.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Omega Healthcare Investors Inc (NYSE:OHI). These stocks are 10x Genomics, Inc. (NASDAQ:TXG), PulteGroup, Inc. (NYSE:PHM), GCI Liberty, Inc. (NASDAQ:GLIBA), and BanColombia S.A. (NYSE:CIB). All of these stocks’ market caps match OHI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TXG 20 166530 8
PHM 36 465706 2
GLIBA 49 1833581 2
CIB 11 86861 -3
Average 29 638170 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $153 million in OHI’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 bullish hedge fund positions. Omega Healthcare Investors Inc (NYSE:OHI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately OHI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OHI investors were disappointed as the stock returned 22% since Q1 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.