Where Do Hedge Funds Stand On Universal Display Corporation (OLED)?

Is Universal Display Corporation (NASDAQ:OLED) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Universal Display Corporation (NASDAQ:OLED) investors should pay attention to a decrease in hedge fund interest lately. Universal Display Corporation (NASDAQ:OLED) was in 20 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 33. There were 25 hedge funds in our database with OLED holdings at the end of June. Our calculations also showed that OLED isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s review the fresh hedge fund action encompassing Universal Display Corporation (NASDAQ:OLED).

Do Hedge Funds Think OLED Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in OLED 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.

More specifically, Renaissance Technologies was the largest shareholder of Universal Display Corporation (NASDAQ:OLED), with a stake worth $49.3 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $49.1 million. PEAK6 Capital Management, Two Sigma Advisors, and D E Shaw 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 Tegean Capital Management allocated the biggest weight to Universal Display Corporation (NASDAQ:OLED), around 3.07% of its 13F portfolio. Thames Capital Management is also relatively very bullish on the stock, setting aside 0.96 percent of its 13F equity portfolio to OLED.

Because Universal Display Corporation (NASDAQ:OLED) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group dumped the largest investment of the 750 funds followed by Insider Monkey, worth close to $27.8 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $5.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Universal Display Corporation (NASDAQ:OLED). These stocks are Globe Life Inc. (NYSE:GL), MGM Growth Properties LLC (NYSE:MGP), Five9 Inc (NASDAQ:FIVN), LKQ Corporation (NASDAQ:LKQ), NiSource Inc. (NYSE:NI), Formula One Group (NASDAQ:FWONK), and Henry Schein, Inc. (NASDAQ:HSIC). This group of stocks’ market valuations match OLED’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.6 hedge funds with bullish positions and the average amount invested in these stocks was $991 million. That figure was $96 million in OLED’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand NiSource Inc. (NYSE:NI) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Universal Display Corporation (NASDAQ:OLED) is even less popular than NI. Our overall hedge fund sentiment score for OLED is 18.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on OLED as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on OLED as the stock returned 28.7% since Q3 (through December 14th) and outperformed the market by an even larger margin.

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