Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Overstock.com, Inc. (NASDAQ:OSTK) based on that data.
Is Overstock.com, Inc. (NASDAQ:OSTK) a good investment now? Prominent investors are selling. The number of bullish hedge fund positions shrunk by 4 in recent months. Our calculations also showed that OSTK 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
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 take a glance at the new hedge fund action encompassing Overstock.com, Inc. (NASDAQ:OSTK).
How are hedge funds trading Overstock.com, Inc. (NASDAQ:OSTK)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in OSTK a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, CSat Investment Advisory was the largest shareholder of Overstock.com, Inc. (NASDAQ:OSTK), with a stake worth $5.3 million reported as of the end of March. Trailing CSat Investment Advisory was Citadel Investment Group, which amassed a stake valued at $4.8 million. Interval Partners, North Fourth Asset Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Overstock.com, Inc. (NASDAQ:OSTK) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that decided to sell off their entire stakes heading into Q3. Interestingly, Anthony Joseph Vaccarino’s North Fourth Asset Management dropped the biggest stake of all the hedgies followed by Insider Monkey, totaling about $5.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $2.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Overstock.com, Inc. (NASDAQ:OSTK) but similarly valued. We will take a look at CytomX Therapeutics, Inc. (NASDAQ:CTMX), Whitestone REIT (NYSE:WSR), CURO Group Holdings Corp. (NYSE:CURO), and Meridian Bioscience, Inc. (NASDAQ:VIVO). This group of stocks’ market caps are similar to OSTK’s market cap.
|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 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $13 million in OSTK’s case. Meridian Bioscience, Inc. (NASDAQ:VIVO) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 4 bullish hedge fund positions. Overstock.com, Inc. (NASDAQ:OSTK) 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. 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 OSTK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OSTK investors were disappointed as the stock returned -22.1% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.