Is OMC Stock A Buy or Sell?
Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Omnicom Group Inc. (NYSE:OMC).
Is OMC stock a buy? Hedge fund interest in Omnicom Group Inc. (NYSE:OMC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that OMC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Ally Financial Inc (NYSE:ALLY), C3.ai, Inc. (NYSE:AI), and WPP Plc (NYSE:WPP) to gather more data points.
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 124 percentage points since March 2017 (see the details here).
David Harding of Winton Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's take a peek at the new hedge fund action surrounding Omnicom Group Inc. (NYSE:OMC).
Do Hedge Funds Think OMC Is A Good Stock To Buy Now?
At fourth quarter's end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in OMC a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Omnicom Group Inc. (NYSE:OMC), which was worth $170.9 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $76.3 million worth of shares. Millennium Management, D E Shaw, and Renaissance Technologies 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 Cinctive Capital Management allocated the biggest weight to Omnicom Group Inc. (NYSE:OMC), around 0.63% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, setting aside 0.43 percent of its 13F equity portfolio to OMC.
Since Omnicom Group Inc. (NYSE:OMC) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their entire stakes last quarter. It's worth mentioning that Paul Tudor Jones's Tudor Investment Corp cut the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $1.4 million in stock, and Alec Litowitz and Ross Laser's Magnetar Capital was right behind this move, as the fund said goodbye to about $0.9 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Omnicom Group Inc. (NYSE:OMC) but similarly valued. These stocks are Ally Financial Inc (NYSE:ALLY), C3.ai, Inc. (NYSE:AI), WPP Plc (NYSE:WPP), The J.M. Smucker Company (NYSE:SJM), James Hardie Industries plc (NYSE:JHX), DaVita Inc (NYSE:DVA), and Raymond James Financial, Inc. (NYSE:RJF). This group of stocks' market caps are similar to OMC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLY,57,2593837,4 AI,37,483532,37 WPP,6,37552,-1 SJM,34,580428,3 JHX,4,11803,0 DVA,32,4814258,-2 RJF,34,580848,6 Average,29.1,1300323,6.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $1300 million. That figure was $547 million in OMC's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 4 bullish hedge fund positions. Omnicom Group Inc. (NYSE:OMC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OMC is 63.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. Hedge funds were also right about betting on OMC as the stock returned 21.7% since the end of Q4 (through 4/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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