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Is Orion Engineered Carbons SA (OEC) A Good Stock To Buy?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Orion Engineered Carbons SA (NYSE:OEC) ready to rally soon? Prominent investors are turning less bullish. The number of long hedge fund positions fell by 6 recently. Our calculations also showed that OEC isn’t among the 30 most popular stocks among hedge funds (see 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.

According to most stock holders, hedge funds are seen as unimportant, outdated financial tools of years past. While there are over 8000 funds in operation today, We hone in on the elite of this group, about 750 funds. These investment experts direct bulk of the hedge fund industry’s total asset base, and by tracking their first-class equity investments, Insider Monkey has spotted numerous investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

OEC_oct2019

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. We’re going to check out the fresh hedge fund action surrounding Orion Engineered Carbons SA (NYSE:OEC).

How are hedge funds trading Orion Engineered Carbons SA (NYSE:OEC)?

Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the first quarter of 2019. On the other hand, there were a total of 24 hedge funds with a bullish position in OEC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Noam Gottesman GLG Partners

Among these funds, Renaissance Technologies held the most valuable stake in Orion Engineered Carbons SA (NYSE:OEC), which was worth $95 million at the end of the second quarter. On the second spot was Millennium Management which amassed $49.9 million worth of shares. Moreover, First Pacific Advisors LLC, Inherent Group, and GLG Partners were also bullish on Orion Engineered Carbons SA (NYSE:OEC), allocating a large percentage of their portfolios to this stock.

Because Orion Engineered Carbons SA (NYSE:OEC) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few hedgies who sold off their positions entirely in the second quarter. Intriguingly, Amy Minella’s Cardinal Capital dumped the biggest position of all the hedgies followed by Insider Monkey, valued at about $13.2 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $4.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 6 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Orion Engineered Carbons SA (NYSE:OEC). We will take a look at Easterly Government Properties Inc (NYSE:DEA), United Fire Group, Inc. (NASDAQ:UFCS), Tompkins Financial Corporation (NYSE:TMP), and Safehold Inc. (NYSE:SAFE). This group of stocks’ market valuations resemble OEC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DEA 6 60382 0
UFCS 10 17181 0
TMP 5 20068 0
SAFE 3 3970 2
Average 6 25400 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $269 million in OEC’s case. United Fire Group, Inc. (NASDAQ:UFCS) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) 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 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 OEC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OEC were disappointed as the stock returned -21% 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 in Q3.

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

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