At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not Office Depot Inc (NASDAQ:ODP) makes for a good investment right now.
Is Office Depot Inc (NASDAQ:ODP) a cheap investment now? Money managers are taking a pessimistic view. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that ODP isn't among the 30 most popular stocks among hedge funds (see the video below). ODP was in 20 hedge funds' portfolios at the end of June. There were 22 hedge funds in our database with ODP holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the latest hedge fund action surrounding Office Depot Inc (NASDAQ:ODP).
What have hedge funds been doing with Office Depot Inc (NASDAQ:ODP)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ODP over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Canyon Capital Advisors was the largest shareholder of Office Depot Inc (NASDAQ:ODP), with a stake worth $25.6 million reported as of the end of March. Trailing Canyon Capital Advisors was Renaissance Technologies, which amassed a stake valued at $13.3 million. AQR Capital Management, Arrowstreet Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Because Office Depot Inc (NASDAQ:ODP) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there exists a select few hedge funds that slashed their entire stakes in the second quarter. Intriguingly, Steve Cohen's Point72 Asset Management cut the largest position of the "upper crust" of funds monitored by Insider Monkey, worth about $5.7 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund sold off about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let's check out hedge fund activity in other stocks similar to Office Depot Inc (NASDAQ:ODP). These stocks are Apollo Investment Corp. (NASDAQ:AINV), Southside Bancshares, Inc. (NASDAQ:SBSI), CBIZ, Inc. (NYSE:CBZ), and Cortexyme, Inc. (NASDAQ:CRTX). All of these stocks' market caps are closest to ODP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AINV,6,30182,-3 SBSI,7,59491,0 CBZ,14,150330,-2 CRTX,2,3311,2 Average,7.25,60829,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $63 million in ODP's case. CBIZ, Inc. (NYSE:CBZ) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Office Depot Inc (NASDAQ:ODP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ODP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ODP were disappointed as the stock returned -13.1% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.