“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Opko Health Inc. (NYSE:OPK) and see how it was affected.
Is Opko Health Inc. (NYSE:OPK) going to take off soon? The best stock pickers are selling. The number of long hedge fund positions fell by 1 lately. Our calculations also showed that OPK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). OPK was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with OPK holdings at the end of the previous quarter.
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the new hedge fund action surrounding Opko Health Inc. (NYSE:OPK).
Hedge fund activity in Opko Health Inc. (NYSE:OPK)
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in OPK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Opko Health Inc. (NYSE:OPK) was held by D E Shaw, which reported holding $4.6 million worth of stock at the end of September. It was followed by Intrinsic Edge Capital with a $2.8 million position. Other investors bullish on the company included Highbridge Capital Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Opko Health Inc. (NYSE:OPK), around 0.31% of its 13F portfolio. Highbridge Capital Management is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to OPK.
Seeing as Opko Health Inc. (NYSE:OPK) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds that decided to sell off their full holdings last quarter. Intriguingly, Xiuping Li’s Opti Capital Management said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, worth an estimated $3.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $0.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Opko Health Inc. (NYSE:OPK). These stocks are SemGroup Corp (NYSE:SEMG), 360 Finance, Inc. (NASDAQ:QFIN), AeroVironment, Inc. (NASDAQ:AVAV), and Amerisafe, Inc. (NASDAQ:AMSF). This group of stocks’ market values are closest to OPK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEMG | 18 | 120426 | 3 |
| QFIN | 4 | 733 | -5 |
| AVAV | 10 | 35594 | -2 |
| AMSF | 12 | 39800 | 0 |
| Average | 11 | 49138 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $11 million in OPK’s case. SemGroup Corp (NYSE:SEMG) is the most popular stock in this table. On the other hand 360 Finance, Inc. (NASDAQ:QFIN) is the least popular one with only 4 bullish hedge fund positions. Opko Health Inc. (NYSE:OPK) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OPK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OPK were disappointed as the stock returned -23.9% during the fourth quarter (through the end of November) 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.
