In this article we will check out the progression of hedge fund sentiment towards Ocwen Financial Corporation (NYSE:OCN) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is OCN a good stock to buy now? Ocwen Financial Corporation (NYSE:OCN) has experienced a decrease in activity from the world’s largest hedge funds lately. Ocwen Financial Corporation (NYSE:OCN) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that OCN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. With all of this in mind we’re going to analyze the recent hedge fund action regarding Ocwen Financial Corporation (NYSE:OCN).
Hedge fund activity in Ocwen Financial Corporation (NYSE:OCN)
At third quarter’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -53% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in OCN a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Omega Advisors was the largest shareholder of Ocwen Financial Corporation (NYSE:OCN), with a stake worth $18.6 million reported as of the end of September. Trailing Omega Advisors was CQS Cayman LP, which amassed a stake valued at $4.7 million. D E Shaw, Prescott Group Capital Management, and GLG Partners 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 Omega Advisors allocated the biggest weight to Ocwen Financial Corporation (NYSE:OCN), around 1.83% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, designating 1.63 percent of its 13F equity portfolio to OCN.
Because Ocwen Financial Corporation (NYSE:OCN) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Eric Schneider’s OCO Capital Partners dropped the biggest stake of the 750 funds tracked by Insider Monkey, totaling about $1.1 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 9 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Ocwen Financial Corporation (NYSE:OCN). We will take a look at Quantum Corporation (NASDAQ:QMCO), Sify Technologies Limited (NASDAQ:SIFY), LiqTech International Inc (NASDAQ:LIQT), Veru Inc. (NASDAQ:VERU), Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSE), LiveXLive Media, Inc. (NASDAQ:LIVX), and Integra Resources Corp. (NYSE:ITRG). This group of stocks’ market values resemble OCN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.4 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $35 million in OCN’s case. LiveXLive Media, Inc. (NASDAQ:LIVX) is the most popular stock in this table. On the other hand Integra Resources Corp. (NYSE:ITRG) is the least popular one with only 1 bullish hedge fund positions. Ocwen Financial Corporation (NYSE:OCN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OCN is 48.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on OCN as the stock returned 12% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.