We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) has experienced an increase in hedge fund interest in recent months. Our calculations also showed that OLLI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 41 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.
[caption id="attachment_339343" align="aligncenter" width="400"] Brad Farber of Atika Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to go over the new hedge fund action surrounding Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI).
How have hedgies been trading Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OLLI over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Tower House Partners, managed by Paolo Mortarotti, holds the most valuable position in Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI). Tower House Partners has a $35.9 million position in the stock, comprising 25.6% of its 13F portfolio. Coming in second is D E Shaw, managed by D. E. Shaw, which holds a $30.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism include Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Tower House Partners allocated the biggest weight to Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI), around 25.58% of its 13F portfolio. Atika Capital is also relatively very bullish on the stock, earmarking 1.26 percent of its 13F equity portfolio to OLLI.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) headfirst. Armistice Capital, managed by Steven Boyd, established the largest position in Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI). Armistice Capital had $7 million invested in the company at the end of the quarter. Brad Farber's Atika Capital also made a $6.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Louis Bacon's Moore Global Investments, David Harding's Winton Capital Management, and Brian Scudieri's Kehrs Ridge Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) but similarly valued. These stocks are Southwest Gas Corporation (NYSE:SWX), Stifel Financial Corp. (NYSE:SF), F.N.B. Corp (NYSE:FNB), and B2Gold Corp (NYSE:BTG). This group of stocks' market caps resemble OLLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWX,23,200768,1 SF,15,148704,1 FNB,23,124299,4 BTG,17,242934,3 Average,19.5,179176,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $171 million in OLLI's case. Southwest Gas Corporation (NYSE:SWX) is the most popular stock in this table. On the other hand Stifel Financial Corp. (NYSE:SF) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately OLLI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OLLI were disappointed as the stock returned -36.2% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.