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Is Realty Income (O) Stock A Buy or Sell?

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Realty Income Corporation (NYSE:O) based on that data.

Is O stock a buy? Realty Income Corporation (NYSE:O) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds' portfolios at the end of the fourth quarter of 2020. Our calculations also showed that O 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 Nasdaq, Inc. (NASDAQ:NDAQ), Farfetch Limited (NYSE:FTCH), and PPL Corporation (NYSE:PPL) to gather more data points.

In the eyes of most investors, hedge funds are perceived as slow, old investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our experts hone in on the masters of this club, approximately 850 funds. These hedge fund managers shepherd the lion's share of the smart money's total asset base, and by following their inimitable investments, Insider Monkey has formulated a few investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Billionaire David Siegel's Top 10 Stock Picks
Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 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 we're going to take a peek at the key hedge fund action regarding Realty Income Corporation (NYSE:O).

Do Hedge Funds Think O Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards O over the last 22 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is O A Good Stock To Buy?
Is O A Good Stock To Buy?

Among these funds, Two Sigma Advisors held the most valuable stake in Realty Income Corporation (NYSE:O), which was worth $61.4 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $52.3 million worth of shares. D E Shaw, Adage Capital Management, and Waterfront Capital Partners 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 Waterfront Capital Partners allocated the biggest weight to Realty Income Corporation (NYSE:O), around 1.88% of its 13F portfolio. Glendon Capital Management is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to O.

Seeing as Realty Income Corporation (NYSE:O) has faced bearish sentiment from hedge fund managers, it's safe to say that there were a few hedgies that decided to sell off their positions entirely by the end of the fourth quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital dropped the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at close to $3.1 million in stock. Greg Eisner's fund, Engineers Gate Manager, also dropped its stock, about $1.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks similar to Realty Income Corporation (NYSE:O). These stocks are Nasdaq, Inc. (NASDAQ:NDAQ), Farfetch Limited (NYSE:FTCH), PPL Corporation (NYSE:PPL), Church & Dwight Co., Inc. (NYSE:CHD), MarketAxess Holdings Inc. (NASDAQ:MKTX), MongoDB, Inc. (NASDAQ:MDB), and Baker Hughes Company (NYSE:BKR). All of these stocks' market caps match O's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NDAQ,27,340111,-5 FTCH,47,3034788,7 PPL,21,152416,0 CHD,38,1131247,2 MKTX,34,945720,0 MDB,36,2105361,-6 BKR,35,694644,7 Average,34,1200612,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1201 million. That figure was $239 million in O's case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand PPL Corporation (NYSE:PPL) is the least popular one with only 21 bullish hedge fund positions. Realty Income Corporation (NYSE:O) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for O is 38.5. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately O wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); O investors were disappointed as the stock returned 9.6% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.

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