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Hedge Funds Are Crazy About Option Care Health, Inc. (OPCH)

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We at Insider Monkey have gone over 873 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th. In this article, we look at what those funds think of Option Care Health, Inc. (NASDAQ:OPCH) based on that data.

Hedge fund interest in Option Care Health, Inc. (NASDAQ:OPCH) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that OPCH isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare OPCH to other stocks including Sabra Health Care REIT Inc (NASDAQ:SBRA), Glaukos Corporation (NYSE:GKOS), and Arconic Corporation (NYSE:ARNC) to get a better sense of its popularity.

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.

Stan Druckenmiller DUQUESNE CAPITAL
Stan Druckenmiller DUQUESNE CAPITAL

Stanley Druckenmiller of Duquesne Capital

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 we're going to go over the new hedge fund action encompassing Option Care Health, Inc. (NASDAQ:OPCH).

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

At the end of June, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OPCH over the last 24 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Park West Asset Management was the largest shareholder of Option Care Health, Inc. (NASDAQ:OPCH), with a stake worth $131.8 million reported as of the end of June. Trailing Park West Asset Management was Polar Capital, which amassed a stake valued at $49.2 million. Senator Investment Group, Royce & Associates, and Duquesne Capital 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 Park West Asset Management allocated the biggest weight to Option Care Health, Inc. (NASDAQ:OPCH), around 3.76% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 1.51 percent of its 13F equity portfolio to OPCH.

Seeing as Option Care Health, Inc. (NASDAQ:OPCH) has experienced a decline in interest from hedge fund managers, logic holds that there were a few money managers that slashed their entire stakes in the second quarter. Intriguingly, Jonathan Barrett and Paul Segal's Luminus Management cut the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $27.3 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dumped its stock, about $4.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks similar to Option Care Health, Inc. (NASDAQ:OPCH). These stocks are Sabra Health Care REIT Inc (NASDAQ:SBRA), Glaukos Corporation (NYSE:GKOS), Arconic Corporation (NYSE:ARNC), Korn Ferry (NYSE:KFY), Brighthouse Financial, Inc. (NASDAQ:BHF), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), and Cushman & Wakefield plc (NYSE:CWK). All of these stocks' market caps are similar to OPCH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBRA,14,100037,-7 GKOS,19,51490,1 ARNC,30,1000061,4 KFY,21,247721,5 BHF,26,494240,-2 ACAD,21,1390015,-12 CWK,23,245483,4 Average,22,504150,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $504 million. That figure was $343 million in OPCH's case. Arconic Corporation (NYSE:ARNC) is the most popular stock in this table. On the other hand Sabra Health Care REIT Inc (NASDAQ:SBRA) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Option Care Health, Inc. (NASDAQ:OPCH) is more popular among hedge funds. Our overall hedge fund sentiment score for OPCH is 85. 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 returned 24.9% in 2021 through October 15th but still managed to beat the market by 4.5 percentage points. Hedge funds were also right about betting on OPCH as the stock returned 11.8% since the end of June (through 10/15) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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