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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Omeros Corporation (NASDAQ:OMER).
Is OMER a good stock to buy now? Omeros Corporation (NASDAQ:OMER) was in 15 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. OMER shareholders have witnessed an increase in enthusiasm from smart money lately. There were 7 hedge funds in our database with OMER holdings at the end of June. Our calculations also showed that OMER isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
Ian Wace of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Keeping this in mind let's review the recent hedge fund action encompassing Omeros Corporation (NASDAQ:OMER).
Do Hedge Funds Think OMER Is A Good Stock To Buy Now?
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 114% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in OMER over the last 21 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Cormorant Asset Management held the most valuable stake in Omeros Corporation (NASDAQ:OMER), which was worth $50.5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $25.5 million worth of shares. Cormorant Asset Management, Consonance Capital Management, and Marshall Wace LLP 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 Cormorant Asset Management allocated the biggest weight to Omeros Corporation (NASDAQ:OMER), around 1.94% of its 13F portfolio. Consonance Capital Management is also relatively very bullish on the stock, earmarking 0.6 percent of its 13F equity portfolio to OMER.
As one would reasonably expect, specific money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the largest position in Omeros Corporation (NASDAQ:OMER). Marshall Wace LLP had $4.4 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also made a $3.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management, Greg Eisner's Engineers Gate Manager, and Frederick DiSanto's Ancora Advisors.
Let's check out hedge fund activity in other stocks similar to Omeros Corporation (NASDAQ:OMER). These stocks are Forrester Research, Inc. (NASDAQ:FORR), Five Point Holdings, LLC (NYSE:FPH), Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), Tilray, Inc. (NASDAQ:TLRY), Saul Centers Inc (NYSE:BFS), ARMOUR Residential REIT, Inc. (NYSE:ARR), and Ready Capital Corporation (NYSE:RC). This group of stocks' market caps are closest to OMER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FORR,8,73281,1 FPH,13,143746,-1 GLDD,20,96450,3 TLRY,6,18056,-5 BFS,7,23157,0 ARR,11,21680,0 RC,10,27304,0 Average,10.7,57668,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.7 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $96 million in OMER's case. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) is the most popular stock in this table. On the other hand Tilray, Inc. (NASDAQ:TLRY) is the least popular one with only 6 bullish hedge fund positions. Omeros Corporation (NASDAQ:OMER) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OMER is 72.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on OMER as the stock returned 50.2% since the end of Q3 (through 12/14) 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.