Was The Smart Money Right About Omega Flex, Inc. (OFLX)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Omega Flex, Inc. (NASDAQ:OFLX).

Omega Flex, Inc. (NASDAQ:OFLX) was in 6 hedge funds’ portfolios at the end of December. OFLX shareholders have witnessed an increase in enthusiasm from smart money recently. There were 5 hedge funds in our database with OFLX holdings at the end of the previous quarter. Our calculations also showed that OFLX 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).

Roger Ibbotson of Zebra Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a peek at the fresh hedge fund action encompassing Omega Flex, Inc. (NASDAQ:OFLX).

What does smart money think about Omega Flex, Inc. (NASDAQ:OFLX)?

Heading into the first quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OFLX over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Omega Flex, Inc. (NASDAQ:OFLX), which was worth $3.8 million at the end of the third quarter. On the second spot was ExodusPoint Capital which amassed $0.4 million worth of shares. Paloma Partners, Millennium Management, and Zebra Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Omega Flex, Inc. (NASDAQ:OFLX), around 0.24% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to OFLX.

As one would reasonably expect, specific money managers have jumped into Omega Flex, Inc. (NASDAQ:OFLX) headfirst. ExodusPoint Capital, managed by Michael Gelband, created the largest position in Omega Flex, Inc. (NASDAQ:OFLX). ExodusPoint Capital had $0.4 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.4 million position during the quarter. The only other fund with a new position in the stock is Israel Englander’s Millennium Management.

Let’s check out hedge fund activity in other stocks similar to Omega Flex, Inc. (NASDAQ:OFLX). We will take a look at Primoris Services Corp (NASDAQ:PRIM), Arch Coal, Inc. (NYSE:ARCH), Warrior Met Coal, Inc. (NYSE:HCC), and Nexa Resources S.A. (NYSE:NEXA). This group of stocks’ market valuations are similar to OFLX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRIM 11 32912 -3
ARCH 26 197756 -1
HCC 29 254959 0
NEXA 5 5135 -2
Average 17.75 122691 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $5 million in OFLX’s case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 5 bullish hedge fund positions. Omega Flex, Inc. (NASDAQ:OFLX) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately OFLX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OFLX investors were disappointed as the stock returned -17% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
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.