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Does Otter Tail Corporation (NASDAQ:OTTR) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Otter Tail Corporation (NASDAQ:OTTR) has seen an increase in activity from the world's largest hedge funds in recent months. OTTR was in 14 hedge funds' portfolios at the end of September. There were 12 hedge funds in our database with OTTR holdings at the end of the previous quarter. Our calculations also showed that OTTR 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"]
Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the latest hedge fund action regarding Otter Tail Corporation (NASDAQ:OTTR).
How are hedge funds trading Otter Tail Corporation (NASDAQ:OTTR)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in OTTR a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in Otter Tail Corporation (NASDAQ:OTTR). Renaissance Technologies has a $49.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is GAMCO Investors, managed by Mario Gabelli, which holds a $17.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions contain Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Otter Tail Corporation (NASDAQ:OTTR), around 0.77% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to OTTR.
As aggregate interest increased, some big names have been driving this bullishness. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in Otter Tail Corporation (NASDAQ:OTTR). Paloma Partners had $0.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Otter Tail Corporation (NASDAQ:OTTR) but similarly valued. We will take a look at Tri Pointe Group Inc (NYSE:TPH), LegacyTexas Financial Group Inc (NASDAQ:LTXB), Pretium Resources Inc (NYSE:PVG), and First Merchants Corporation (NASDAQ:FRME). This group of stocks' market caps are similar to OTTR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPH,24,230367,7 LTXB,10,92773,-5 PVG,22,121252,0 FRME,10,91788,0 Average,16.5,134045,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $80 million in OTTR's case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand LegacyTexas Financial Group Inc (NASDAQ:LTXB) is the least popular one with only 10 bullish hedge fund positions. Otter Tail Corporation (NASDAQ:OTTR) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OTTR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OTTR investors were disappointed as the stock returned -7.9% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.