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Hedge Funds Never Been Less Bullish On Option Care Health, Inc. (OPCH)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Option Care Health, Inc. (NASDAQ:OPCH) based on that data.

Is Option Care Health, Inc. (NASDAQ:OPCH) undervalued? Hedge funds are taking a bearish view. The number of bullish hedge fund positions went down by 7 in recent months. Our calculations also showed that OPCH 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). OPCH was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with OPCH holdings at the end of the previous quarter.

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

In the eyes of most investors, hedge funds are assumed to be unimportant, old financial vehicles of years past. While there are greater than 8000 funds in operation today, Our experts choose to focus on the aristocrats of this group, around 850 funds. Most estimates calculate that this group of people handle the lion’s share of all hedge funds’ total asset base, and by watching their best stock picks, Insider Monkey has come up with a number of investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Option Care Health, Inc. (NASDAQ:OPCH).

What does smart money think about Option Care Health, Inc. (NASDAQ:OPCH)?

Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in OPCH over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Option Care Health, Inc. (NASDAQ:OPCH) was held by Royce & Associates, which reported holding $6.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $2.6 million position. Other investors bullish on the company included GAMCO Investors, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Option Care Health, Inc. (NASDAQ:OPCH), around 0.09% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to OPCH.

Judging by the fact that Option Care Health, Inc. (NASDAQ:OPCH) has faced a decline in interest from the smart money, logic holds that there exists a select few hedge funds who were dropping their full holdings in the first quarter. Interestingly, Jeffrey Bersh and Michael Wartell’s Venor Capital Management sold off the biggest investment of all the hedgies followed by Insider Monkey, comprising about $46.4 million in stock. Christopher Shackelton and Adam Gray’s fund, Coliseum Capital, also sold off its stock, about $11.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 7 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Option Care Health, Inc. (NASDAQ:OPCH) but similarly valued. These stocks are Spectrum Brands Holdings, Inc. (NYSE:SPB), LCI Industries (NYSE:LCII), Moog Inc (NYSE:MOG), and Atlas Corp. (NYSE:ATCO). This group of stocks’ market caps resemble OPCH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPB 24 207647 -21
LCII 15 77500 -2
MOG 20 68438 -1
ATCO 13 794664 -2
Average 18 287062 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $12 million in OPCH’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand Atlas Corp. (NYSE:ATCO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Option Care Health, Inc. (NASDAQ:OPCH) is even less popular than ATCO. Hedge funds clearly dropped the ball on OPCH as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on OPCH as the stock returned 75.5% so far in the second quarter and outperformed the market by an even larger margin.

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