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In this article we are going to use hedge fund sentiment as a tool and determine whether Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistic is 23. OCDX investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. There were 23 hedge funds in our database with OCDX holdings at the end of March. Our calculations also showed that OCDX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's take a gander at the key hedge fund action encompassing Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX).
Do Hedge Funds Think OCDX Is A Good Stock To Buy Now?
At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the first quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in OCDX a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Alyeska Investment Group, managed by Anand Parekh, holds the biggest position in Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX). Alyeska Investment Group has a $52.2 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Armistice Capital, managed by Steven Boyd, which holds a $35.8 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Kamran Moghtaderi's Eversept Partners, Jerome Pfund and Michael Sjostrom's Sectoral Asset Management and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX), around 2.34% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, earmarking 2.23 percent of its 13F equity portfolio to OCDX.
Judging by the fact that Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) has witnessed declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of hedgies who were dropping their full holdings heading into Q3. Interestingly, James E. Flynn's Deerfield Management sold off the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $45.4 million in stock. Kevin Michael Ulrich and Anthony Davis's fund, Anchorage Advisors, also said goodbye to its stock, about $9.6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) but similarly valued. We will take a look at MSC Industrial Direct Co Inc (NYSE:MSM), Valmont Industries, Inc. (NYSE:VMI), 3D Systems Corporation (NYSE:DDD), Rayonier Inc. (NYSE:RYN), Nomad Foods Limited (NYSE:NOMD), Stantec Inc. (NYSE:STN), and Power Integrations Inc (NASDAQ:POWI). This group of stocks' market values match OCDX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSM,18,385991,-2 VMI,25,403639,2 DDD,20,511358,4 RYN,13,392663,-5 NOMD,26,298284,1 STN,10,46456,1 POWI,21,138778,3 Average,19,311024,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $311 million. That figure was $234 million in OCDX's case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 10 bullish hedge fund positions. Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OCDX is 64.8. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately OCDX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on OCDX were disappointed as the stock returned -8.4% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.