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Were Hedge Funds Right About Souring On Opko Health Inc. (OPK)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtOpko Health Inc. (NASDAQ:OPK) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Opko Health Inc. (NASDAQ:OPK) was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. OPK shareholders have witnessed a decrease in hedge fund interest recently. There were 16 hedge funds in our database with OPK positions at the end of the previous quarter. Our calculations also showed that OPK 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.

To most stock holders, hedge funds are seen as unimportant, outdated financial tools of yesteryear. While there are greater than 8000 funds in operation at the moment, We choose to focus on the aristocrats of this group, around 850 funds. These hedge fund managers direct the majority of the smart money’s total capital, and by tracking their inimitable stock picks, Insider Monkey has formulated numerous investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year 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 .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 states that banned plastic bags to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind let’s take a look at the new hedge fund action encompassing Opko Health Inc. (NASDAQ:OPK).

How are hedge funds trading Opko Health Inc. (NASDAQ:OPK)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in OPK 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.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander’s Millennium Management has the largest position in Opko Health Inc. (NASDAQ:OPK), worth close to $4.8 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is John Overdeck and David Siegel of Two Sigma Advisors, with a $1.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise Highbridge Capital Management, Mark Coe’s Intrinsic Edge Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Highbridge Capital Management allocated the biggest weight to Opko Health Inc. (NASDAQ:OPK), around 0.1% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.1 percent of its 13F equity portfolio to OPK.

Because Opko Health Inc. (NASDAQ:OPK) has faced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that elected to cut their entire stakes by the end of the first quarter. Intriguingly, George Soros’s Soros Fund Management said goodbye to the largest investment of the 750 funds watched by Insider Monkey, worth about $13.3 million in stock. Farallon Capital, also cut its stock, about $3.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Opko Health Inc. (NASDAQ:OPK). These stocks are NanoString Technologies Inc (NASDAQ:NSTG), Skyline Champion Corporation (NYSE:SKY), Sturm, Ruger & Company, Inc. (NYSE:RGR), and Service Properties Trust (NASDAQ:SVC). This group of stocks’ market valuations resemble OPK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NSTG 18 118794 3
SKY 23 143480 -3
RGR 14 102980 2
SVC 23 30778 6
Average 19.5 99008 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $10 million in OPK’s case. Skyline Champion Corporation (NYSE:SKY) is the most popular stock in this table. On the other hand Sturm, Ruger & Company, Inc. (NYSE:RGR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Opko Health Inc. (NASDAQ:OPK) is even less popular than RGR. Hedge funds clearly dropped the ball on OPK as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on OPK as the stock returned 100% so far in the second quarter and outperformed the market by an even larger margin.

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