Did Hedge Funds Make The Right Call On ORBCOMM Inc (ORBC) ?

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 ORBCOMM Inc (NASDAQ:ORBC) and determine whether the smart money was really smart about this stock.

ORBCOMM Inc (NASDAQ:ORBC) has seen an increase in hedge fund sentiment in recent months. ORBC was in 18 hedge funds’ portfolios at the end of March. There were 17 hedge funds in our database with ORBC positions at the end of the previous quarter. Our calculations also showed that ORBC 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

John Rogers Ariel Investments

John Rogers of Ariel Investments

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 take a peek at the latest hedge fund action encompassing ORBCOMM Inc (NASDAQ:ORBC).

How are hedge funds trading ORBCOMM Inc (NASDAQ:ORBC)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ORBC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in ORBCOMM Inc (NASDAQ:ORBC) was held by Adage Capital Management, which reported holding $18.9 million worth of stock at the end of September. It was followed by Ariel Investments with a $6.7 million position. Other investors bullish on the company included Rubric Capital Management, Renaissance Technologies, and Millennium Management. In terms of the portfolio weights assigned to each position Rubric Capital Management allocated the biggest weight to ORBCOMM Inc (NASDAQ:ORBC), around 0.64% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to ORBC.

Consequently, key money managers were leading the bulls’ herd. Rubric Capital Management, managed by David Rosen, established the largest position in ORBCOMM Inc (NASDAQ:ORBC). Rubric Capital Management had $4.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $0 million position during the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ORBCOMM Inc (NASDAQ:ORBC) but similarly valued. These stocks are Trilogy Metals Inc. (NYSE:TMQ), LAIX Inc. (NYSE:LAIX), MiX Telematics Limited (NYSE:MIXT), and Co-Diagnostics, Inc. (NASDAQ:CODX). This group of stocks’ market values are closest to ORBC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TMQ 7 45140 -5
LAIX 1 45 -2
MIXT 9 17815 -3
CODX 5 2044 4
Average 5.5 16261 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $43 million in ORBC’s case. MiX Telematics Limited (NYSE:MIXT) is the most popular stock in this table. On the other hand LAIX Inc. (NYSE:LAIX) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks ORBCOMM Inc (NASDAQ:ORBC) 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on ORBC as the stock returned 57.4% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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