Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Omega Healthcare Investors Inc (NYSE:OHI) shareholders have witnessed an increase in enthusiasm from smart money of late. Our calculations also showed that OHI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Talpins of Element Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the recent hedge fund action surrounding Omega Healthcare Investors Inc (NYSE:OHI).
What does smart money think about Omega Healthcare Investors Inc (NYSE:OHI)?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OHI over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the most valuable position in Omega Healthcare Investors Inc (NYSE:OHI). Renaissance Technologies has a $96.7 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $36.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise John Khoury’s Long Pond Capital, Ken Griffin’s Citadel Investment Group and Jeffrey Talpins’s Element Capital Management. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to Omega Healthcare Investors Inc (NYSE:OHI), around 1.39% of its 13F portfolio. P.A.W. Capital Partners is also relatively very bullish on the stock, setting aside 0.62 percent of its 13F equity portfolio to OHI.
Consequently, some big names were leading the bulls’ herd. Element Capital Management, managed by Jeffrey Talpins, created the most valuable position in Omega Healthcare Investors Inc (NYSE:OHI). Element Capital Management had $5.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.1 million investment in the stock during the quarter. The other funds with brand new OHI positions are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Donald Sussman’s Paloma Partners, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now take a look at hedge fund activity in other stocks similar to Omega Healthcare Investors Inc (NYSE:OHI). These stocks are CPFL Energia S.A. (NYSE:CPL), OGE Energy Corp. (NYSE:OGE), US Foods Holding Corp. (NYSE:USFD), and Amdocs Limited (NASDAQ:DOX). This group of stocks’ market values are similar to OHI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPL | 3 | 17897 | -1 |
| OGE | 16 | 201507 | 3 |
| USFD | 42 | 1269520 | 3 |
| DOX | 23 | 621074 | -2 |
| Average | 21 | 527500 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $527 million. That figure was $176 million in OHI’s case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 3 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 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. Unfortunately OHI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OHI investors were disappointed as the stock returned 2.1% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
