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Should I Avoid Orion Engineered Carbons SA (OEC)?

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·5 min read
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In this article we will analyze whether Orion Engineered Carbons SA (NYSE:OEC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Orion Engineered Carbons SA (NYSE:OEC) shareholders have witnessed a decrease in hedge fund sentiment of late. Orion Engineered Carbons SA (NYSE:OEC) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 28. Our calculations also showed that OEC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's view the key hedge fund action regarding Orion Engineered Carbons SA (NYSE:OEC).

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

At the end of September, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2021. By comparison, 20 hedge funds held shares or bullish call options in OEC a year ago. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is OEC A Good Stock To Buy?
Is OEC A Good Stock To Buy?

The largest stake in Orion Engineered Carbons SA (NYSE:OEC) was held by Pzena Investment Management, which reported holding $52.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $32.8 million position. Other investors bullish on the company included Inherent Group, First Pacific Advisors LLC, and Divisar Capital. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to Orion Engineered Carbons SA (NYSE:OEC), around 3.88% of its 13F portfolio. Inherent Group is also relatively very bullish on the stock, earmarking 2.63 percent of its 13F equity portfolio to OEC.

Due to the fact that Orion Engineered Carbons SA (NYSE:OEC) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedge funds who sold off their full holdings in the third quarter. It's worth mentioning that Jonathan Auerbach's Hound Partners dropped the biggest stake of all the hedgies tracked by Insider Monkey, worth an estimated $2.5 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund sold off about $1.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Orion Engineered Carbons SA (NYSE:OEC) but similarly valued. We will take a look at Aclaris Therapeutics, Inc. (NASDAQ:ACRS), Anterix Inc. (NASDAQ:ATEX), Uxin Limited (NASDAQ:UXIN), Matthews International Corp (NASDAQ:MATW), DHT Holdings Inc (NYSE:DHT), Yalla Group Limited (NYSE:YALA), and Meridian Bancorp, Inc. (NASDAQ:EBSB). This group of stocks' market caps are closest to OEC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACRS,36,470333,-1 ATEX,16,473412,-2 UXIN,8,25744,0 MATW,14,69746,-2 DHT,15,110503,-5 YALA,4,3656,-2 EBSB,15,125273,-1 Average,15.4,182667,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $178 million in OEC's case. Aclaris Therapeutics, Inc. (NASDAQ:ACRS) is the most popular stock in this table. On the other hand Yalla Group Limited (NYSE:YALA) is the least popular one with only 4 bullish hedge fund positions. Orion Engineered Carbons SA (NYSE:OEC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OEC is 52.1. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately OEC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on OEC were disappointed as the stock returned 0.7% since the end of September (through 12/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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