We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let's see whether Old Republic International Corporation (NYSE:ORI) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Old Republic International Corporation (NYSE:ORI) a great investment now? The smart money is taking an optimistic view. The number of bullish hedge fund bets moved up by 3 in recent months. Our calculations also showed that ORI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="400"] Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's analyze the fresh hedge fund action regarding Old Republic International Corporation (NYSE:ORI).
What have hedge funds been doing with Old Republic International Corporation (NYSE:ORI)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in ORI 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.
Among these funds, Renaissance Technologies held the most valuable stake in Old Republic International Corporation (NYSE:ORI), which was worth $98.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $98 million worth of shares. AQR Capital Management, GLG Partners, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Old Republic International Corporation (NYSE:ORI), around 0.33% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to ORI.
As industrywide interest jumped, key money managers have been driving this bullishness. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, established the most valuable position in Old Republic International Corporation (NYSE:ORI). Voleon Capital had $2.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Mika Toikka's AlphaCrest Capital Management, Philippe Laffont's Coatue Management, and Renee Yao's Neo Ivy Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Old Republic International Corporation (NYSE:ORI) but similarly valued. These stocks are The Medicines Company (NASDAQ:MDCO), HubSpot Inc (NYSE:HUBS), Horizon Pharma Public Limited Company (NASDAQ:HZNP), and AECOM (NYSE:ACM). This group of stocks' market values are closest to ORI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDCO,60,2420538,26 HUBS,30,651657,-6 HZNP,33,1859526,0 ACM,36,1125310,9 Average,39.75,1514258,7.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $1514 million. That figure was $345 million in ORI's case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand HubSpot Inc (NYSE:HUBS) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Old Republic International Corporation (NYSE:ORI) is even less popular than HUBS. Hedge funds dodged a bullet by taking a bearish stance towards ORI. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately ORI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ORI investors were disappointed as the stock returned -27% during the same time 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 most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.