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Is Old Dominion Freight Line, Inc. (ODFL) A Good Stock To Buy?

Abigail Fisher

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Old Dominion Freight Line, Inc. (NASDAQ:ODFL) and see how the stock is affected by the recent hedge fund activity.

Old Dominion Freight Line, Inc. (NASDAQ:ODFL) has seen an increase in hedge fund interest of late. Our calculations also showed that ODFL isn't among the 30 most popular stocks among hedge funds.

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Clint Carlson, Carlson Capital

We're going to review the fresh hedge fund action encompassing Old Dominion Freight Line, Inc. (NASDAQ:ODFL).

What have hedge funds been doing with Old Dominion Freight Line, Inc. (NASDAQ:ODFL)?

Heading into the second quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ODFL over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ODFL_june2019

Among these funds, AQR Capital Management held the most valuable stake in Old Dominion Freight Line, Inc. (NASDAQ:ODFL), which was worth $51.1 million at the end of the first quarter. On the second spot was Millennium Management which amassed $45 million worth of shares. Moreover, Sirios Capital Management, Carlson Capital, and Echo Street Capital Management were also bullish on Old Dominion Freight Line, Inc. (NASDAQ:ODFL), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, specific money managers were leading the bulls' herd. Carlson Capital, managed by Clint Carlson, assembled the biggest position in Old Dominion Freight Line, Inc. (NASDAQ:ODFL). Carlson Capital had $15.1 million invested in the company at the end of the quarter. John Osterweis's Osterweis Capital Management also made a $10 million investment in the stock during the quarter. The other funds with new positions in the stock are Sara Nainzadeh's Centenus Global Management, Matthew Hulsizer's PEAK6 Capital Management, and Steve Cohen's Point72 Asset Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Old Dominion Freight Line, Inc. (NASDAQ:ODFL) but similarly valued. These stocks are Kansas City Southern (NYSE:KSU), SVB Financial Group (NASDAQ:SIVB), Akamai Technologies, Inc. (NASDAQ:AKAM), and Molson Coors Brewing Company (NYSE:TAP). All of these stocks' market caps match ODFL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KSU,26,560883,6 SIVB,29,551951,-4 AKAM,28,763869,-6 TAP,27,317583,-1 Average,27.5,548572,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $220 million in ODFL's case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand Kansas City Southern (NYSE:KSU) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is even less popular than KSU. Hedge funds dodged a bullet by taking a bearish stance towards ODFL. Our calculations showed that the top 15 most popular hedge fund stocks returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ODFL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ODFL investors were disappointed as the stock returned -7.1% during the same time frame 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 so far in the second quarter.

Disclosure: None. This article was originally published at Insider Monkey.

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