Option Care Health, Inc. (BIOS): Are Hedge Funds Right About This Stock?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Option Care Health, Inc. (NASDAQ:BIOS) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Option Care Health, Inc. (NASDAQ:BIOS) going to take off soon? Money managers are taking an optimistic view. The number of bullish hedge fund positions went up by 3 recently. Our calculations also showed that BIOS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a gander at the recent hedge fund action encompassing Option Care Health, Inc. (NASDAQ:BIOS).

What does smart money think about Option Care Health, Inc. (NASDAQ:BIOS)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BIOS over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Option Care Health, Inc. (NASDAQ:BIOS) was held by Venor Capital Management, which reported holding $37 million worth of stock at the end of September. It was followed by Royce & Associates with a $8.2 million position. Other investors bullish on the company included Coliseum Capital, Alta Fundamental Advisers, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Venor Capital Management allocated the biggest weight to Option Care Health, Inc. (NASDAQ:BIOS), around 55.94% of its 13F portfolio. Alta Fundamental Advisers is also relatively very bullish on the stock, designating 3.73 percent of its 13F equity portfolio to BIOS.

Consequently, specific money managers were breaking ground themselves. Caxton Associates, managed by Bruce Kovner, created the largest position in Option Care Health, Inc. (NASDAQ:BIOS). Caxton Associates had $0.1 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also initiated a $0.1 million position during the quarter. The other funds with brand new BIOS positions are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Andre F. Perold’s HighVista Strategies, and John A. Levin’s Levin Capital Strategies.

Let’s check out hedge fund activity in other stocks similar to Option Care Health, Inc. (NASDAQ:BIOS). These stocks are Evertec Inc (NYSE:EVTC), Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), Afya Limited (NASDAQ:AFYA), and Guangshen Railway Co. Ltd (NYSE:GSH). This group of stocks’ market valuations resemble BIOS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EVTC 24 262435 2
IOVA 28 897726 6
AFYA 7 66858 7
GSH 2 4202 1
Average 15.25 307805 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $72 million in BIOS’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Guangshen Railway Co. Ltd (NYSE:GSH) is the least popular one with only 2 bullish hedge fund positions. Option Care Health, Inc. (NASDAQ:BIOS) 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 BIOS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BIOS were disappointed as the stock returned -2.8% 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.