Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Oracle Corporation (NYSE:ORCL) changed recently.
Is Oracle Corporation (NYSE:ORCL) worth your attention right now? Investors who are in the know are selling. The number of long hedge fund positions were trimmed by 11 in recent months. Our calculations also showed that ORCL isn’t among the 30 most popular stocks among hedge funds (see the video below).
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.
Let’s check out the new hedge fund action regarding Oracle Corporation (NYSE:ORCL).
Hedge fund activity in Oracle Corporation (NYSE:ORCL)
At the end of the third quarter, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ORCL over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Oracle Corporation (NYSE:ORCL), with a stake worth $885.6 million reported as of the end of September. Trailing Fisher Asset Management was Eagle Capital Management, which amassed a stake valued at $869.1 million. AQR Capital Management, Yacktman Asset Management, and Pzena Investment Management 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 Yacktman Asset Management allocated the biggest weight to Oracle Corporation (NYSE:ORCL), around 5.43% of its portfolio. Bodenholm Capital is also relatively very bullish on the stock, dishing out 5.19 percent of its 13F equity portfolio to ORCL.
Judging by the fact that Oracle Corporation (NYSE:ORCL) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Renaissance Technologies cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $169.2 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also dropped its stock, about $57.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 11 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Oracle Corporation (NYSE:ORCL) but similarly valued. These stocks are China Mobile Limited (NYSE:CHL), McDonald’s Corporation (NYSE:MCD), The Unilever Group (NYSE:UL), and The Unilever Group (NYSE:UN). This group of stocks’ market valuations are closest to ORCL’s market valuation.
|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 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $989 million. That figure was $4361 million in ORCL’s case. McDonald’s Corporation (NYSE:MCD) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Oracle Corporation (NYSE:ORCL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately ORCL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ORCL were disappointed as the stock returned 2.9% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.