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Were Hedge Funds Right About Oceaneering International, Inc. (OII)?

Asma UL Husna

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article, we will use that wealth of knowledge to determine whether or not Oceaneering International, Inc. (NYSE:OII) makes for a good investment right now.

Oceaneering International, Inc. (NYSE:OII) investors should pay attention to an increase in hedge fund sentiment of late. OII was in 24 hedge funds' portfolios at the end of December. There were 22 hedge funds in our database with OII holdings at the end of the previous quarter. Our calculations also showed that OII isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26092" align="aligncenter" width="397"] Joel Greenblatt of Gotham Asset Management[/caption]

GOTHAM ASSET MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the new hedge fund action encompassing Oceaneering International, Inc. (NYSE:OII).

What have hedge funds been doing with Oceaneering International, Inc. (NYSE:OII)?

Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OII over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Oceaneering International, Inc. (NYSE:OII), which was worth $41.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $20.6 million worth of shares. D E Shaw, Balyasny Asset Management, and Arrowstreet Capital 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 SIR Capital Management allocated the biggest weight to Oceaneering International, Inc. (NYSE:OII), around 0.59% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.24 percent of its 13F equity portfolio to OII.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Oceaneering International, Inc. (NYSE:OII). Arrowstreet Capital had $11.4 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also initiated a $1.1 million position during the quarter. The following funds were also among the new OII investors: Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Michael Gelband's ExodusPoint Capital, and Noam Gottesman's GLG Partners.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Oceaneering International, Inc. (NYSE:OII) but similarly valued. These stocks are Meredith Corporation (NYSE:MDP), Theravance Biopharma Inc (NASDAQ:TBPH), Guess', Inc. (NYSE:GES), and Hercules Capital, Inc. (NYSE:HTGC). This group of stocks' market caps resemble OII's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDP,18,197054,-2 TBPH,13,302473,7 GES,20,118106,0 HTGC,13,36000,3 Average,16,163408,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $142 million in OII's case. Guess', Inc. (NYSE:GES) is the most popular stock in this table. On the other hand Theravance Biopharma Inc (NASDAQ:TBPH) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Oceaneering International, Inc. (NYSE:OII) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately OII wasn't nearly as popular as these 10 stocks and hedge funds that were betting on OII were disappointed as the stock returned -72.1% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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