Orion Engineered Carbons SA (OEC): Are Hedge Funds Right About This Stock?

Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

In this article, we’ll take a closer look at Orion Engineered Carbons SA (NYSE:OEC), which registered a decline in popularity among smart money investors in our database between July and September. There were 12 funds in our database long the stock heading into the fourth quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Momo Inc (ADR) (NASDAQ:MOMO), Adeptus Health Inc (NYSE:ADPT), and Arcos Dorados Holding Inc (NYSE:ARCO) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s go over the recent action surrounding Orion Engineered Carbons SA (NYSE:OEC).

How have hedgies been trading Orion Engineered Carbons SA (NYSE:OEC)?

At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, down by one fund over the quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in OEC at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

HedgeFundSentimentChart (1)

When looking at the institutional investors followed by Insider Monkey, Lakewood Capital Management, led by Anthony Bozza, holds the biggest position in Orion Engineered Carbons SA (NYSE:OEC). Lakewood Capital Management has a $33.2 million position in the stock, comprising 0.8% of its 13F portfolio. On Lakewood Capital Management’s heels is Brigade Capital, led by Don Morgan, which holds a $25.6 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of Renaissance Technologies, one of the largest hedge funds in the world, Alexander Mitchell’s Scopus Asset Management and Brett Hendrickson’s Nokomis Capital. We should note that Brigade Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cashed in their entire stakes in the stock during the third quarter. At the top of the heap, Marc Majzner’s Clearline Capital cashed in the largest stake of all the hedgies followed by Insider Monkey, comprising close to $2.7 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund cut about $0 million worth of shares.

Let’s check out hedge fund activity in other stocks similar to Orion Engineered Carbons SA (NYSE:OEC). We will take a look at Momo Inc (ADR) (NASDAQ:MOMO), Adeptus Health Inc (NYSE:ADPT), Arcos Dorados Holding Inc (NYSE:ARCO), and Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN). This group of stocks’ market valuations are closest to OEC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MOMO 19 233825 10
ADPT 13 183864 -11
ARCO 15 34054 6
ACHN 27 348980 5

As you can see these stocks had an average of 19 funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $121 million in OEC’s case. Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is the most popular stock in this table. On the other hand Adeptus Health Inc (NYSE:ADPT) is the least popular one with 13 funds holding shares. Compared to these stocks Orion Engineered Carbons SA (NYSE:OEC) is even less popular than Adeptus Health Inc (NYSE:ADPT). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none