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Hedge Funds Are Betting On Universal Display Corporation (OLED)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Universal Display Corporation (NASDAQ:OLED).

Universal Display Corporation (NASDAQ:OLED) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that OLED isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action regarding Universal Display Corporation (NASDAQ:OLED).

How have hedgies been trading Universal Display Corporation (NASDAQ:OLED)?

Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OLED over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Universal Display Corporation (NASDAQ:OLED), with a stake worth $59.6 million reported as of the end of September. Trailing Citadel Investment Group was Two Sigma Advisors, which amassed a stake valued at $29.3 million. Renaissance Technologies, Polar Capital, and Millennium Management 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 ZWEIG DIMENNA PARTNERS allocated the biggest weight to Universal Display Corporation (NASDAQ:OLED), around 1.28% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 0.9 percent of its 13F equity portfolio to OLED.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Renaissance Technologies, assembled the most valuable position in Universal Display Corporation (NASDAQ:OLED). Renaissance Technologies had $29.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $16.6 million position during the quarter. The other funds with brand new OLED positions are Joe DiMenna’s ZWEIG DIMENNA PARTNERS, Joel Greenblatt’s Gotham Asset Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Universal Display Corporation (NASDAQ:OLED) but similarly valued. These stocks are Kohl’s Corporation (NYSE:KSS), Caesars Entertainment Corp (NASDAQ:CZR), ON Semiconductor Corporation (NASDAQ:ON), and Zions Bancorporation, National Association (NASDAQ:ZION). This group of stocks’ market valuations resemble OLED’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KSS 27 495049 -2
CZR 45 3756323 -3
ON 22 428054 -4
ZION 29 468677 -6
Average 30.75 1287026 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1287 million. That figure was $232 million in OLED’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand ON Semiconductor Corporation (NASDAQ:ON) is the least popular one with only 22 bullish hedge fund positions. Universal Display Corporation (NASDAQ:OLED) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on OLED as the stock returned 15.7% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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