Is OEC A Good Stock To Buy Now?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Orion Engineered Carbons SA (NYSE:OEC).

Is Orion Engineered Carbons SA (NYSE:OEC) ready to rally soon? The smart money was taking a pessimistic view. The number of long hedge fund positions fell by 1 recently. Orion Engineered Carbons SA (NYSE:OEC) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. Our calculations also showed that OEC 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

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 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 take a peek at the fresh hedge fund action surrounding Orion Engineered Carbons SA (NYSE:OEC).

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

Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in OEC 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.

According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the biggest position in Orion Engineered Carbons SA (NYSE:OEC). Renaissance Technologies has a $37.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Pzena Investment Management, led by Richard S. Pzena, holding a $21.4 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions consist of Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Tony Davis’s Inherent Group and Harry Gail’s Harspring Capital Management. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Orion Engineered Carbons SA (NYSE:OEC), around 5.2% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, designating 3.17 percent of its 13F equity portfolio to OEC.

Seeing as Orion Engineered Carbons SA (NYSE:OEC) has faced falling interest from hedge fund managers, logic holds that there is a sect of hedgies that elected to cut their entire stakes by the end of the third quarter. Interestingly, Israel Englander’s Millennium Management sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling close to $4.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $2.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Orion Engineered Carbons SA (NYSE:OEC). We will take a look at Textainer Group Holdings Limited (NYSE:TGH), Seritage Growth Properties (NYSE:SRG), Phoenix Tree Holdings Limited (NYSE:DNK), Nantkwest Inc (NASDAQ:NK), Central Securities Corporation (NYSE:CET), Vapotherm, Inc. (NYSE:VAPO), and Criteo SA (NASDAQ:CRTO). All of these stocks’ market caps match OEC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGH 9 17681 0
SRG 12 126062 -6
DNK 3 151959 0
NK 10 6919 2
CET 3 16311 0
VAPO 18 161202 0
CRTO 11 59115 0
Average 9.4 77036 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.4 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $131 million in OEC’s case. Vapotherm, Inc. (NYSE:VAPO) is the most popular stock in this table. On the other hand Phoenix Tree Holdings Limited (NYSE:DNK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Orion Engineered Carbons SA (NYSE:OEC) is more popular among hedge funds. Our overall hedge fund sentiment score for OEC is 75.4. 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 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 returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on OEC as the stock returned 20.6% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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