We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Olin Corporation (NYSE:OLN) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Olin Corporation (NYSE:OLN) was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2019. OLN investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 28 hedge funds in our database with OLN holdings at the end of the previous quarter. Our calculations also showed that OLN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most stock holders, hedge funds are perceived as slow, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation today, We choose to focus on the top tier of this group, approximately 850 funds. It is estimated that this group of investors administer most of all hedge funds’ total capital, and by shadowing their unrivaled picks, Insider Monkey has come up with various investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to go over the recent hedge fund action surrounding Olin Corporation (NYSE:OLN).
Hedge fund activity in Olin Corporation (NYSE:OLN)
Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the third quarter of 2019. By comparison, 33 hedge funds held shares or bullish call options in OLN a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Phill Gross and Robert Atchinson’s Adage Capital Management has the biggest position in Olin Corporation (NYSE:OLN), worth close to $128.9 million, amounting to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Pzena Investment Management, led by Richard S. Pzena, holding a $63.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Steven Richman’s East Side Capital (RR Partners), Jed Nussdorf’s Soapstone Capital and Ed Bosek’s BeaconLight Capital. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Olin Corporation (NYSE:OLN), around 9.32% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, designating 8.84 percent of its 13F equity portfolio to OLN.
As industrywide interest jumped, specific money managers have jumped into Olin Corporation (NYSE:OLN) headfirst. Pzena Investment Management, managed by Richard S. Pzena, established the largest position in Olin Corporation (NYSE:OLN). Pzena Investment Management had $63.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $8.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Sara Nainzadeh’s Centenus Global Management, Jeffrey Moskowitz’s Harvey Partners, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s go over hedge fund activity in other stocks similar to Olin Corporation (NYSE:OLN). We will take a look at American Assets Trust, Inc (NYSE:AAT), Moog Inc (NYSE:MOG), DouYu International Holdings Limited (NASDAQ:DOYU), and CNO Financial Group Inc (NYSE:CNO). This group of stocks’ market valuations match OLN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAT | 15 | 42601 | 3 |
| MOG | 21 | 102586 | 0 |
| DOYU | 6 | 41645 | -4 |
| CNO | 23 | 336702 | 3 |
| Average | 16.25 | 130884 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $359 million in OLN’s case. CNO Financial Group Inc (NYSE:CNO) is the most popular stock in this table. On the other hand DouYu International Holdings Limited (NASDAQ:DOYU) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Olin Corporation (NYSE:OLN) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately OLN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OLN were disappointed as the stock returned -30.9% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
