The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Overstock.com, Inc. (NASDAQ:OSTK), and what that likely means for the prospects of the company and its stock.
Overstock.com, Inc. (NASDAQ:OSTK) has experienced a decrease in hedge fund sentiment of late. OSTK was in 4 hedge funds' portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with OSTK positions at the end of the previous quarter. Our calculations also showed that OSTK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's review the new hedge fund action surrounding Overstock.com, Inc. (NASDAQ:OSTK).
What does smart money think about Overstock.com, Inc. (NASDAQ:OSTK)?
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -56% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in OSTK a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Gregg Moskowitz's Interval Partners has the number one call position in Overstock.com, Inc. (NASDAQ:OSTK), worth close to $3.7 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Claes Fornell of CSat Investment Advisory, with a $2.4 million position; 0.8% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish encompass Anthony Joseph Vaccarino's North Fourth Asset Management, Adam Usdan's Trellus Management Company and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Trellus Management Company allocated the biggest weight to Overstock.com, Inc. (NASDAQ:OSTK), around 0.87% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, setting aside 0.76 percent of its 13F equity portfolio to OSTK.
Since Overstock.com, Inc. (NASDAQ:OSTK) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers who were dropping their entire stakes heading into Q4. It's worth mentioning that David E. Shaw's D E Shaw dumped the largest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $2.3 million in stock, and Sculptor Capital was right behind this move, as the fund sold off about $2.1 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Overstock.com, Inc. (NASDAQ:OSTK) but similarly valued. We will take a look at VSE Corporation (NASDAQ:VSEC), Rite Aid Corporation (NYSE:RAD), CONSOL Coal Resources LP (NYSE:CCR), and Park-Ohio Holdings Corp. (NASDAQ:PKOH). This group of stocks' market values match OSTK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VSEC,4,1393,0 RAD,8,8650,-1 CCR,4,76134,0 PKOH,8,28571,1 Average,6,28687,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $4 million in OSTK's case. Rite Aid Corporation (NYSE:RAD) is the most popular stock in this table. On the other hand VSE Corporation (NASDAQ:VSEC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Overstock.com, Inc. (NASDAQ:OSTK) is even less popular than VSEC. Hedge funds dodged a bullet by taking a bearish stance towards OSTK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OSTK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OSTK investors were disappointed as the stock returned -28.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.