Were Hedge Funds Right About Ditching Oracle Corporation (ORCL)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Oracle Corporation (NASDAQ:ORCL) based on that data and determine whether they were really smart about the stock.

Oracle Corporation (NASDAQ:ORCL) has seen a decrease in support from the world’s most elite money managers recently. Our calculations also showed that ORCL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most stock holders, hedge funds are perceived as worthless, outdated financial vehicles of years past. While there are over 8000 funds in operation at present, Our researchers hone in on the moguls of this club, about 850 funds. These hedge fund managers direct most of the smart money’s total capital, and by watching their unrivaled stock picks, Insider Monkey has spotted several investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed 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 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action surrounding Oracle Corporation (NASDAQ:ORCL).

How have hedgies been trading Oracle Corporation (NASDAQ:ORCL)?

At Q1’s end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the fourth quarter of 2019. On the other hand, there were a total of 52 hedge funds with a bullish position in ORCL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ORCL A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Oracle Corporation (NASDAQ:ORCL), with a stake worth $638.4 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $356.4 million. Eagle Capital Management, Yacktman Asset Management, and Pzena Investment 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 Yacktman Asset Management allocated the biggest weight to Oracle Corporation (NASDAQ:ORCL), around 4.37% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, setting aside 4.16 percent of its 13F equity portfolio to ORCL.

Judging by the fact that Oracle Corporation (NASDAQ:ORCL) has faced a decline in interest from the smart money, it’s easy to see that there were a few hedgies who were dropping their entire stakes heading into Q4. At the top of the heap, Jonathan Bloomberg’s BloombergSen sold off the biggest investment of all the hedgies tracked by Insider Monkey, valued at close to $76.6 million in stock, and Jim Simons (founder)’s Renaissance Technologies was right behind this move, as the fund dumped about $46 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 11 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Oracle Corporation (NASDAQ:ORCL) but similarly valued. We will take a look at Novo Nordisk A/S (NYSE:NVO), Abbott Laboratories (NYSE:ABT), Chevron Corporation (NYSE:CVX), and Eli Lilly and Company (NYSE:LLY). All of these stocks’ market caps resemble ORCL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVO 24 3036975 1
ABT 62 2189754 0
CVX 53 1646070 6
LLY 43 1323452 0
Average 45.5 2049063 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.5 hedge funds with bullish positions and the average amount invested in these stocks was $2049 million. That figure was $2438 million in ORCL’s case. Abbott Laboratories (NYSE:ABT) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 24 bullish hedge fund positions. Oracle Corporation (NASDAQ:ORCL) 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately ORCL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ORCL were disappointed as the stock returned 14.9% 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 many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.