Is ONE Gas Inc (OGS) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards ONE Gas Inc (NYSE:OGS) , and what that likely means for the prospects of the company and its stock.

Is ONE Gas Inc (NYSE:OGS) going to take off soon? Hedge funds are categorically getting less bullish. The number of long hedge fund bets contracted by 1 recently. OGS was in 11 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with OGS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hawaiian Electric Industries, Inc. (NYSE:HE), Snyder S Lance Inc (NASDAQ:LNCE), and Yelp Inc (NYSE:YELP) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s take a look at the recent action regarding ONE Gas Inc (NYSE:OGS).

How are hedge funds trading ONE Gas Inc (NYSE:OGS)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2016. By comparison, 8 hedge funds held shares or bullish call options in OGS heading into this year. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in ONE Gas Inc (NYSE:OGS), worth close to $43.6 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $6.4 million position; less than 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise Millennium Management, one of the largest hedge funds in the world, Mario Gabelli’s GAMCO Investors and D E Shaw. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since ONE Gas Inc (NYSE:OGS) has gone through falling interest from the entirety of the hedge funds we track, we can see that there were a few funds who sold off their positions entirely heading into Q4. Interestingly, Andre F. Perold’s HighVista Strategies dropped the largest investment of all the investors watched by Insider Monkey, valued at close to $2.2 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also sold off its call options, about $0.4 million worth.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ONE Gas Inc (NYSE:OGS) but similarly valued. These stocks are Hawaiian Electric Industries, Inc. (NYSE:HE), Snyder S Lance Inc (NASDAQ:LNCE), Yelp Inc (NYSE:YELP), and The Hanover Insurance Group, Inc. (NYSE:THG). All of these stocks’ market caps are closest to OGS’s market cap.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $67 million in OGS’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Snyder S Lance Inc (NASDAQ:LNCE) is the least popular one with only 8 bullish hedge fund positions. ONE Gas Inc (NYSE:OGS) 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. In this regard YELP might be a better candidate to consider taking a long position in.