How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding 1Life Healthcare, Inc. (NASDAQ:ONEM) and determine whether hedge funds had an edge regarding this stock.
Is 1Life Healthcare, Inc. (NASDAQ:ONEM) a buy, sell, or hold? The best stock pickers were becoming more confident. The number of long hedge fund positions went up by 10 lately. 1Life Healthcare, Inc. (NASDAQ:ONEM) was in 20 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 10. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ONEM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 10 hedge funds in our database with ONEM positions at the end of the first quarter. Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind let's take a peek at the new hedge fund action regarding 1Life Healthcare, Inc. (NASDAQ:ONEM).
What does smart money think about 1Life Healthcare, Inc. (NASDAQ:ONEM)?
At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ONEM over the last 20 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Lee Ainslie's Maverick Capital has the number one position in 1Life Healthcare, Inc. (NASDAQ:ONEM), worth close to $121 million, corresponding to 2.5% of its total 13F portfolio. The second largest stake is held by Redmile Group, led by Jeremy Green, holding a $109.3 million position; 2% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish contain Suzi Nutton's Lansdowne Partners, Renaissance Technologies and Anand Parekh's Alyeska Investment Group. In terms of the portfolio weights assigned to each position Pinz Capital allocated the biggest weight to 1Life Healthcare, Inc. (NASDAQ:ONEM), around 2.85% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, dishing out 2.54 percent of its 13F equity portfolio to ONEM.
As aggregate interest increased, specific money managers have been driving this bullishness. Renaissance Technologies, established the most valuable position in 1Life Healthcare, Inc. (NASDAQ:ONEM). Renaissance Technologies had $15.3 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $9.2 million position during the quarter. The other funds with brand new ONEM positions are Matthew L Pinz's Pinz Capital, Michael Rockefeller and KarláKroeker's Woodline Partners, and Jonathan Auerbach's Hound Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as 1Life Healthcare, Inc. (NASDAQ:ONEM) but similarly valued. We will take a look at Q2 Holdings Inc (NYSE:QTWO), Science Applications International Corp (NYSE:SAIC), Haemonetics Corporation (NYSE:HAE), MyoKardia, Inc. (NASDAQ:MYOK), TCF Financial Corporation (NYSE:TCF), Western Midstream Partners, LP (NYSE:WES), and Life Storage, Inc. (NYSE:LSI). This group of stocks' market caps are similar to ONEM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTWO,26,290188,8 SAIC,35,448930,1 HAE,39,533278,5 MYOK,45,1360886,12 TCF,14,85082,-5 WES,11,79571,-1 LSI,19,137533,-3 Average,27,419353,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $419 million. That figure was $345 million in ONEM's case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 11 bullish hedge fund positions. 1Life Healthcare, Inc. (NASDAQ:ONEM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ONEM is 40. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ONEM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ONEM investors were disappointed as the stock returned -21.9% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.