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Were Hedge Funds Right About Souring On Omega Healthcare Investors Inc (OHI)?

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Omega Healthcare Investors Inc (NYSE:OHI) was in 11 hedge funds’ portfolios at the end of December. OHI investors should pay attention to a decrease in hedge fund interest of late. There were 12 hedge funds in our database with OHI holdings at the end of the previous quarter. Our calculations also showed that OHI isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

SAC CAPITAL ADVISORS

Let’s analyze the latest hedge fund action regarding Omega Healthcare Investors Inc (NYSE:OHI).

Hedge fund activity in Omega Healthcare Investors Inc (NYSE:OHI)

Heading into the first quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OHI over the last 14 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

OHI_apr2019

Of the funds tracked by Insider Monkey, Jim Simons’s Renaissance Technologies has the largest position in Omega Healthcare Investors Inc (NYSE:OHI), worth close to $90.1 million, comprising 0.1% of its total 13F portfolio. Coming in second is John Overdeck and David Siegel of Two Sigma Advisors, with a $30.7 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish consist of Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Matthew Hulsizer’s PEAK6 Capital Management.

Judging by the fact that Omega Healthcare Investors Inc (NYSE:OHI) has witnessed declining sentiment from the smart money, logic holds that there exists a select few fund managers who were dropping their entire stakes by the end of the third quarter. It’s worth mentioning that Eduardo Abush’s Waterfront Capital Partners sold off the biggest stake of the 700 funds tracked by Insider Monkey, totaling close to $5.5 million in stock. Richard Driehaus’s fund, Driehaus Capital, also cut its stock, about $2.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Omega Healthcare Investors Inc (NYSE:OHI) but similarly valued. We will take a look at Okta, Inc. (NASDAQ:OKTA), Ubiquiti Networks Inc (NASDAQ:UBNT), PVH Corp (NYSE:PVH), and Western Midstream Partners, LP (NYSE:WES). This group of stocks’ market values resemble OHI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OKTA 40 672928 8
UBNT 19 387799 3
PVH 35 814656 -9
WES 6 53279 -2
Average 25 482166 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $482 million. That figure was $158 million in OHI’s case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 6 bullish hedge fund positions. Omega Healthcare Investors Inc (NYSE:OHI) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately OHI wasn’t in this group. Hedge funds that bet on OHI were disappointed as the stock returned 6.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

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

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