In this article you are going to find out whether hedge funds think Park-Ohio Holdings Corp. (NASDAQ:PKOH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Park-Ohio Holdings Corp. (NASDAQ:PKOH) was in 6 hedge funds' portfolios at the end of the first quarter of 2020. PKOH investors should be aware of a decrease in enthusiasm from smart money of late. There were 12 hedge funds in our database with PKOH holdings at the end of the previous quarter. Our calculations also showed that PKOH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_738761" align="aligncenter" width="400"] Fred DiSanto of Ancora Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's view the new hedge fund action regarding Park-Ohio Holdings Corp. (NASDAQ:PKOH).
How have hedgies been trading Park-Ohio Holdings Corp. (NASDAQ:PKOH)?
At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in PKOH a year ago. So, let's see 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, Mario Gabelli's GAMCO Investors has the largest position in Park-Ohio Holdings Corp. (NASDAQ:PKOH), worth close to $14.8 million, corresponding to 0.2% of its total 13F portfolio. On GAMCO Investors's heels is Chuck Royce of Royce & Associates, with a $2.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Frederick DiSanto's Ancora Advisors. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Park-Ohio Holdings Corp. (NASDAQ:PKOH), around 0.18% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to PKOH.
Due to the fact that Park-Ohio Holdings Corp. (NASDAQ:PKOH) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedge funds who were dropping their entire stakes by the end of the first quarter. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $0.4 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Park-Ohio Holdings Corp. (NASDAQ:PKOH). We will take a look at Lithium Americas Corp. (NYSE:LAC), Zix Corporation (NASDAQ:ZIXI), PolyMet Mining Corp. (NYSE:PLM), and Southern National Bancorp of Virginia, Inc (NASDAQ:SONA). This group of stocks' market values resemble PKOH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LAC,3,1097,-1 ZIXI,15,32028,-1 PLM,3,395,1 SONA,10,13333,1 Average,7.75,11713,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $18 million in PKOH's case. Zix Corporation (NASDAQ:ZIXI) is the most popular stock in this table. On the other hand Lithium Americas Corp. (NYSE:LAC) is the least popular one with only 3 bullish hedge fund positions. Park-Ohio Holdings Corp. (NASDAQ:PKOH) 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 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately PKOH wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PKOH investors were disappointed as the stock returned -8.3% during the second 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.
Disclosure: None. This article was originally published at Insider Monkey.