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Do Hedge Funds Love Outset Medical, Inc. (OM)?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 866 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Outset Medical, Inc. (NASDAQ:OM).

Is Outset Medical, Inc. (NASDAQ:OM) a buy, sell, or hold? Prominent investors were cutting their exposure. The number of bullish hedge fund bets were cut by 7 lately. Outset Medical, Inc. (NASDAQ:OM) was in 17 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 27. Our calculations also showed that OM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 24 hedge funds in our database with OM holdings at the end of December.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

James Flynn Deerfield Management
James Flynn Deerfield Management

James E. Flynn of Deerfield Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 take a look at the new hedge fund action encompassing Outset Medical, Inc. (NASDAQ:OM).

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

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OM over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is OM A Good Stock To Buy?
Is OM A Good Stock To Buy?

The largest stake in Outset Medical, Inc. (NASDAQ:OM) was held by D1 Capital Partners, which reported holding $248.9 million worth of stock at the end of December. It was followed by Partner Fund Management with a $163.9 million position. Other investors bullish on the company included Perceptive Advisors, Pura Vida Investments, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Partner Fund Management allocated the biggest weight to Outset Medical, Inc. (NASDAQ:OM), around 5% of its 13F portfolio. D1 Capital Partners is also relatively very bullish on the stock, setting aside 1.84 percent of its 13F equity portfolio to OM.

Since Outset Medical, Inc. (NASDAQ:OM) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few fund managers that elected to cut their entire stakes last quarter. Intriguingly, James E. Flynn's Deerfield Management said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $9.9 million in stock, and OrbiMed Advisors was right behind this move, as the fund cut about $7.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 7 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Outset Medical, Inc. (NASDAQ:OM). We will take a look at Patria Investments Limited (NASDAQ:PAX), Renasant Corporation (NASDAQ:RNST), Myriad Genetics, Inc. (NASDAQ:MYGN), O-I Glass, Inc. (NYSE:OI), Federal Signal Corporation (NYSE:FSS), Sorrento Therapeutics Inc (NASDAQ:SRNE), and E2open Parent Holdings, Inc. (NYSE:ETWO). This group of stocks' market values are similar to OM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAX,19,192923,19 RNST,7,6587,0 MYGN,16,412141,0 OI,23,321783,-2 FSS,13,44589,-1 SRNE,14,51358,1 ETWO,35,997584,35 Average,18.1,289566,7.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $611 million in OM's case. E2open Parent Holdings, Inc. (NYSE:ETWO) is the most popular stock in this table. On the other hand Renasant Corporation (NASDAQ:RNST) is the least popular one with only 7 bullish hedge fund positions. Outset Medical, Inc. (NASDAQ:OM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OM is 34.7. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately OM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); OM investors were disappointed as the stock returned -18.5% since the end of March (through 7/23) 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 in 2021.

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