In this article we are going to use hedge fund sentiment as a tool and determine whether Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) undervalued? The best stock pickers were in a bullish mood. The number of long hedge fund bets advanced by 23 in recent months. Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) was in 23 hedge funds’ portfolios at the end of March. Our calculations also showed that OCDX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a look at the key hedge fund action surrounding Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX).
Do Hedge Funds Think OCDX Is A Good Stock To Buy Now?
At the end of March, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23 from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in OCDX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Alyeska Investment Group, managed by Anand Parekh, holds the largest position in Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX). Alyeska Investment Group has a $90.4 million position in the stock, comprising 1.2% of its 13F portfolio. On Alyeska Investment Group’s heels is James E. Flynn of Deerfield Management, with a $45.4 million position; 1% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism encompass Steven Boyd’s Armistice Capital, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management and Kamran Moghtaderi’s Eversept Partners. In terms of the portfolio weights assigned to each position Sectoral Asset Management allocated the biggest weight to Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX), around 2.53% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, designating 2.1 percent of its 13F equity portfolio to OCDX.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, established the most outsized position in Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX). Alyeska Investment Group had $90.4 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also initiated a $45.4 million position during the quarter. The other funds with brand new OCDX positions are Steven Boyd’s Armistice Capital, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, and Kamran Moghtaderi’s Eversept Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) but similarly valued. These stocks are PacWest Bancorp (NASDAQ:PACW), Radian Group Inc (NYSE:RDN), ACI Worldwide Inc (NASDAQ:ACIW), VIZIO Holding Corp. (NYSE:VZIO), UMB Financial Corporation (NASDAQ:UMBF), Sterling Bancorp (NYSE:STL), and Rayonier Inc. (NYSE:RYN). This group of stocks’ market valuations are similar to OCDX’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $328 million in OCDX’s case. PacWest Bancorp (NASDAQ:PACW) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 13 bullish hedge fund positions. Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OCDX is 54.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately OCDX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on OCDX were disappointed as the stock returned 7.6% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.