Hedge Funds Aren’t Crazy About Oak Street Health, Inc. (OSH) Anymore

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Oak Street Health, Inc. (NYSE:OSH).

Oak Street Health, Inc. (NYSE:OSH) was in 31 hedge funds’ portfolios at the end of March. The all time high for this statistic is 34. OSH shareholders have witnessed a decrease in hedge fund interest of late. There were 34 hedge funds in our database with OSH holdings at the end of December. Our calculations also showed that OSH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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.

Michael Johnston - Steelhead Partners

Michael Johnston of Steelhead Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a glance at the recent hedge fund action surrounding Oak Street Health, Inc. (NYSE:OSH).

Do Hedge Funds Think OSH Is A Good Stock To Buy Now?

At first quarter’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in OSH a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Redmile Group was the largest shareholder of Oak Street Health, Inc. (NYSE:OSH), with a stake worth $159 million reported as of the end of March. Trailing Redmile Group was Millennium Management, which amassed a stake valued at $119.7 million. Holocene Advisors, OrbiMed Advisors, and Route One Investment Company 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 Iron Triangle Partners allocated the biggest weight to Oak Street Health, Inc. (NYSE:OSH), around 2.42% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, dishing out 2.24 percent of its 13F equity portfolio to OSH.

Due to the fact that Oak Street Health, Inc. (NYSE:OSH) has faced bearish sentiment from the smart money, it’s easy to see that there were a few hedgies that elected to cut their entire stakes last quarter. It’s worth mentioning that James E. Flynn’s Deerfield Management cut the biggest stake of the 750 funds followed by Insider Monkey, valued at an estimated $58.2 million in stock. Alok Agrawal’s fund, Bloom Tree Partners, also cut its stock, about $44.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Oak Street Health, Inc. (NYSE:OSH) but similarly valued. We will take a look at The Carlyle Group Inc (NASDAQ:CG), UDR, Inc. (NYSE:UDR), Open Text Corporation (NASDAQ:OTEX), Icahn Enterprises LP (NASDAQ:IEP), Brown & Brown, Inc. (NYSE:BRO), Enel Americas S.A. (NYSE:ENIA), and F5 Networks, Inc. (NASDAQ:FFIV). This group of stocks’ market caps are closest to OSH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CG 26 506255 5
UDR 30 312293 7
OTEX 16 215690 -2
IEP 4 11950636 0
BRO 25 915409 -4
ENIA 11 116873 2
FFIV 26 871819 -8
Average 19.7 2126996 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $2127 million. That figure was $603 million in OSH’s case. UDR, Inc. (NYSE:UDR) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Oak Street Health, Inc. (NYSE:OSH) is more popular among hedge funds. Our overall hedge fund sentiment score for OSH is 79.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. Unfortunately OSH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on OSH were disappointed as the stock returned 8.1% since the end of the first quarter (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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