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Were Hedge Funds Right About Buying Oracle Corporation (ORCL)?

Reymerlyn Martin

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Oracle Corporation (NYSE:ORCL) a healthy stock for your portfolio? Money managers are in a bullish mood. The number of bullish hedge fund bets improved by 5 lately. Our calculations also showed that ORCL isn't among the 30 most popular stocks among hedge funds.

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' 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Boykin Curry EAGLE CAPITAL MANAGEMENT

We're going to take a glance at the key hedge fund action regarding Oracle Corporation (NYSE:ORCL).

Hedge fund activity in Oracle Corporation (NYSE:ORCL)

Heading into the first quarter of 2019, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ORCL over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ORCL_mar2019

Among these funds, Eagle Capital Management held the most valuable stake in Oracle Corporation (NYSE:ORCL), which was worth $1084.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $656.6 million worth of shares. Moreover, Yacktman Asset Management, D E Shaw, and Pzena Investment Management were also bullish on Oracle Corporation (NYSE:ORCL), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Oracle Corporation (NYSE:ORCL). Arrowstreet Capital had $214.5 million invested in the company at the end of the quarter. Robert Pohly's Samlyn Capital also made a $26 million investment in the stock during the quarter. The other funds with brand new ORCL positions are Robert Joseph Caruso's Select Equity Group, Steve Cohen's Point72 Asset Management, and Matthew Tewksbury's Stevens Capital Management.

Let's check out hedge fund activity in other stocks similar to Oracle Corporation (NYSE:ORCL). These stocks are PepsiCo, Inc. (NASDAQ:PEP), Comcast Corporation (NASDAQ:CMCSA), Unilever plc (NYSE:UL), and AbbVie Inc (NYSE:ABBV). This group of stocks' market valuations are similar to ORCL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEP,53,4043339,5 CMCSA,83,6159653,-9 UL,13,212305,-1 ABBV,46,3023497,6 Average,48.75,3359699,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.75 hedge funds with bullish positions and the average amount invested in these stocks was $3360 million. That figure was $5763 million in ORCL's case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Unilever plc (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. Oracle Corporation (NYSE:ORCL) is not the most popular stock in this group but hedge fund interest is still above average and has been increasing recently. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on Oracle as the stock returned 17.7% and outperformed the market as well.

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

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