There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Owens & Minor, Inc. (NYSE:OMI).
Owens & Minor, Inc. (NYSE:OMI) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds' portfolios at the end of the first quarter of 2019. At the end of this article we will also compare OMI to other stocks including Evelo Biosciences, Inc. (NASDAQ:EVLO), Cross Country Healthcare, Inc. (NASDAQ:CCRN), and Aerohive Networks Inc (NYSE:HIVE) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let's take a gander at the recent hedge fund action surrounding Owens & Minor, Inc. (NYSE:OMI).
Hedge fund activity in Owens & Minor, Inc. (NYSE:OMI)
Heading into the second quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in OMI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Chuck Royce's Royce & Associates has the biggest position in Owens & Minor, Inc. (NYSE:OMI), worth close to $5.6 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $3.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism consist of Israel Englander's Millennium Management, John Overdeck and David Siegel's Two Sigma Advisors and Jim Simons's Renaissance Technologies.
Seeing as Owens & Minor, Inc. (NYSE:OMI) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few hedgies who were dropping their positions entirely heading into Q3. It's worth mentioning that Phil Frohlich's Prescott Group Capital Management sold off the largest stake of the 700 funds followed by Insider Monkey, worth about $3.5 million in stock, and Michael Platt and William Reeves's BlueCrest Capital Mgmt. was right behind this move, as the fund cut about $0.1 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Owens & Minor, Inc. (NYSE:OMI). We will take a look at Evelo Biosciences, Inc. (NASDAQ:EVLO), Cross Country Healthcare, Inc. (NASDAQ:CCRN), Aerohive Networks Inc (NYSE:HIVE), and Ames National Corporation (NASDAQ:ATLO). All of these stocks' market caps are closest to OMI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVLO,2,7029,-1 CCRN,8,14270,-5 HIVE,14,69732,-1 ATLO,3,19629,0 Average,6.75,27665,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $18 million in OMI's case. Aerohive Networks Inc (NYSE:HIVE) is the most popular stock in this table. On the other hand Evelo Biosciences, Inc. (NASDAQ:EVLO) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Owens & Minor, Inc. (NYSE:OMI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately OMI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OMI were disappointed as the stock returned -28.5% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.