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Should I Buy Orion Engineered Carbons SA (OEC)?

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 30th, so let’s proceed with the discussion of the hedge fund sentiment on Orion Engineered Carbons SA (NYSE:OEC).

Orion Engineered Carbons SA (NYSE:OEC) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistic is 28. OEC shareholders have witnessed an increase in activity from the world's largest hedge funds recently. There were 19 hedge funds in our database with OEC holdings at the end of March. Our calculations also showed that OEC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 79 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.

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Keeping this in mind let's analyze the new hedge fund action regarding Orion Engineered Carbons SA (NYSE:OEC).

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

At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the first quarter of 2020. On the other hand, there were a total of 21 hedge funds with a bullish position in OEC a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in Orion Engineered Carbons SA (NYSE:OEC), which was worth $48 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $39.7 million worth of shares. Inherent Group, First Pacific Advisors LLC, and Millennium 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 Harvey Partners allocated the biggest weight to Orion Engineered Carbons SA (NYSE:OEC), around 3.09% of its 13F portfolio. Roubaix Capital is also relatively very bullish on the stock, setting aside 2.19 percent of its 13F equity portfolio to OEC.

Consequently, key hedge funds have been driving this bullishness. Hound Partners, managed by Jonathan Auerbach, established the most valuable position in Orion Engineered Carbons SA (NYSE:OEC). Hound Partners had $2.5 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.7 million position during the quarter. The other funds with brand new OEC positions are Peter Algert's Algert Global, Kamyar Khajavi's MIK Capital, and Matthew Hulsizer's PEAK6 Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Orion Engineered Carbons SA (NYSE:OEC) but similarly valued. These stocks are Arko Corp. (NASDAQ:ARKO), OFG Bancorp (NYSE:OFG), BJ's Restaurants, Inc. (NASDAQ:BJRI), Oasis Midstream Partners LP (NASDAQ:OMP), Matthews International Corp (NASDAQ:MATW), SMART Global Holdings, Inc. (NASDAQ:SGH), and GreenTree Hospitality Group Ltd. (NYSE:GHG). This group of stocks' market values are closest to OEC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARKO,18,28110,-3 OFG,8,56758,-2 BJRI,16,60269,5 OMP,4,8285,3 MATW,16,82088,1 SGH,20,340509,4 GHG,7,11439,1 Average,12.7,83923,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.7 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $188 million in OEC's case. SMART Global Holdings, Inc. (NASDAQ:SGH) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NASDAQ:OMP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Orion Engineered Carbons SA (NYSE:OEC) is more popular among hedge funds. Our overall hedge fund sentiment score for OEC is 83.6. 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. 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 24% in 2021 through October 22nd and still beat the market by 1.6 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 1.1% since the end of the second quarter (through 10/22) 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 most of these stocks already outperformed the market since 2019.

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