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Is Oi SA (OIBR) Going To Burn These Hedge Funds?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Oi SA (NYSE:OIBR)? The smart money sentiment can provide an answer to this question.

Is Oi SA (NYSE:OIBR) an excellent stock to buy now? Hedge funds are becoming less confident. The number of long hedge fund bets went down by 3 lately. Our calculations also showed that OIBR isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

YORK CAPITAL MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the key hedge fund action encompassing Oi SA (NYSE:OIBR).

What does smart money think about Oi SA (NYSE:OIBR)?

Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OIBR over the last 16 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with OIBR Positions

More specifically, York Capital Management was the largest shareholder of Oi SA (NYSE:OIBR), with a stake worth $268 million reported as of the end of March. Trailing York Capital Management was GoldenTree Asset Management, which amassed a stake valued at $221.6 million. Solus Alternative Asset Management, Canyon Capital Advisors, and Knighthead Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Oi SA (NYSE:OIBR) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedgies who were dropping their entire stakes heading into Q3. Interestingly, Edward A. Mule’s Silver Point Capital cut the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $20.8 million in stock, and Mark Brodsky’s Aurelius Capital Management was right behind this move, as the fund said goodbye to about $6.7 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Oi SA (NYSE:OIBR). These stocks are Halozyme Therapeutics, Inc. (NASDAQ:HALO), Piedmont Office Realty Trust, Inc. (NYSE:PDM), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), and Alarm.com Holdings, Inc. (NASDAQ:ALRM). This group of stocks’ market caps resemble OIBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HALO 19 203619 1
PDM 12 123941 -1
KTOS 18 100760 1
ALRM 19 191648 3
Average 17 154992 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $867 million in OIBR’s case. Halozyme Therapeutics, Inc. (NASDAQ:HALO) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 12 bullish hedge fund positions. Oi SA (NYSE:OIBR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OIBR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OIBR were disappointed as the stock returned -45.3% during the third 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 many of these stocks already outperformed the market so far this year.

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

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