Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Olin Corporation (NYSE:OLN)? The smart money sentiment can provide an answer to this question.
Is Olin Corporation (NYSE:OLN) an outstanding stock to buy now? Money managers are becoming less confident. The number of bullish hedge fund positions shrunk by 5 lately. Our calculations also showed that OLN isn't among the 30 most popular stocks among hedge funds. OLN was in 28 hedge funds' portfolios at the end of March. There were 33 hedge funds in our database with OLN holdings at the end of the previous quarter.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_735641" align="aligncenter" width="473"] Michael Lowenstein of Kensico Capital[/caption]
Let's check out the fresh hedge fund action regarding Olin Corporation (NYSE:OLN).
How have hedgies been trading Olin Corporation (NYSE:OLN)?
Heading into the second quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the fourth quarter of 2018. By comparison, 25 hedge funds held shares or bullish call options in OLN a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Olin Corporation (NYSE:OLN) was held by Adage Capital Management, which reported holding $200.1 million worth of stock at the end of March. It was followed by Kensico Capital with a $179.8 million position. Other investors bullish on the company included D E Shaw, Renaissance Technologies, and Millennium Management.
Due to the fact that Olin Corporation (NYSE:OLN) has faced bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of funds that elected to cut their entire stakes last quarter. Intriguingly, George Baxter's Sabrepoint Capital said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, totaling close to $4.4 million in call options. Jonathan Barrett and Paul Segal's fund, Luminus Management, also sold off its call options, about $4 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Olin Corporation (NYSE:OLN). These stocks are Wintrust Financial Corporation (NASDAQ:WTFC), Stifel Financial Corp. (NYSE:SF), Tech Data Corp (NASDAQ:TECD), and Weingarten Realty Investors (NYSE:WRI). This group of stocks' market caps resemble OLN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTFC,23,380893,-1 SF,16,171601,4 TECD,19,307621,-4 WRI,13,58932,1 Average,17.75,229762,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $623 million in OLN's case. Wintrust Financial Corporation (NASDAQ:WTFC) is the most popular stock in this table. On the other hand Weingarten Realty Investors (NYSE:WRI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Olin Corporation (NYSE:OLN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately OLN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OLN were disappointed as the stock returned -11.5% 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.