Is OSH A Good Stock To Buy?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Oak Street Health, Inc. (NYSE:OSH), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is OSH a good stock to buy now? Investors who are in the know were becoming more confident. The number of bullish hedge fund bets advanced by 22 in recent months. Oak Street Health, Inc. (NYSE:OSH) was in 22 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that OSH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding Oak Street Health, Inc. (NYSE:OSH).

Do Hedge Funds Think OSH Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22 from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards OSH over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is OSH A Good Stock To Buy?

More specifically, Redmile Group was the largest shareholder of Oak Street Health, Inc. (NYSE:OSH), with a stake worth $141.7 million reported as of the end of September. Trailing Redmile Group was Deerfield Management, which amassed a stake valued at $50.8 million. Bloom Tree Partners, Route One Investment Company, and Maverick Capital 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 Bloom Tree Partners allocated the biggest weight to Oak Street Health, Inc. (NYSE:OSH), around 4.35% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, designating 2.6 percent of its 13F equity portfolio to OSH.

Now, key hedge funds were leading the bulls’ herd. Redmile Group, managed by Jeremy Green, established the most valuable position in Oak Street Health, Inc. (NYSE:OSH). Redmile Group had $141.7 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also made a $50.8 million investment in the stock during the quarter. The following funds were also among the new OSH investors: Alok Agrawal’s Bloom Tree Partners, William Duhamel’s Route One Investment Company, and Lee Ainslie’s Maverick Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Oak Street Health, Inc. (NYSE:OSH) but similarly valued. We will take a look at Encore Wire Corporation (NASDAQ:WIRE), Corecivic Inc. (NYSE:CXW), National HealthCare Corporation (NYSE:NHC), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), At Home Group Inc. (NYSE:HOME), Schweitzer-Mauduit International, Inc. (NYSE:SWM), and Construction Partners, Inc. (NASDAQ:ROAD). All of these stocks’ market caps resemble OSH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WIRE 22 49809 2
CXW 19 54489 4
NHC 10 55809 -1
RYTM 10 227247 -1
HOME 34 370504 7
SWM 11 16466 2
ROAD 11 35881 1
Average 16.7 115744 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.7 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $401 million in OSH’s case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand National HealthCare Corporation (NYSE:NHC) is the least popular one with only 10 bullish hedge fund positions. Oak Street Health, Inc. (NYSE:OSH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OSH is 50. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately OSH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OSH were disappointed as the stock returned 5.4% since the end of September (through 12/14) 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.

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