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Were Hedge Funds Right Olin Corporation (OLN)?

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·6 min read
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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Olin Corporation (NYSE:OLN) in this article.

Hedge fund interest in Olin Corporation (NYSE:OLN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that OLN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare OLN to other stocks including Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB), Uniti Group Inc. (NASDAQ:UNIT), and Immunovant, Inc. (NASDAQ:IMVT) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

TUDOR INVESTMENT CORP
TUDOR INVESTMENT CORP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's go over the fresh hedge fund action encompassing Olin Corporation (NYSE:OLN).

What have hedge funds been doing with Olin Corporation (NYSE:OLN)?

At second quarter's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in OLN a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is OLN A Good Stock To Buy?
Is OLN A Good Stock To Buy?

The largest stake in Olin Corporation (NYSE:OLN) was held by Sachem Head Capital, which reported holding $171.8 million worth of stock at the end of June. It was followed by Pzena Investment Management with a $67 million position. Other investors bullish on the company included Adage Capital Management, East Side Capital (RR Partners), and Samlyn Capital. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to Olin Corporation (NYSE:OLN), around 12.23% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, setting aside 8.63 percent of its 13F equity portfolio to OLN.

Judging by the fact that Olin Corporation (NYSE:OLN) has faced bearish sentiment from hedge fund managers, we can see that there lies a certain "tier" of hedge funds who were dropping their entire stakes last quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest position of the "upper crust" of funds monitored by Insider Monkey, worth about $3.6 million in stock, and Ed Bosek's BeaconLight Capital was right behind this move, as the fund sold off about $3.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Olin Corporation (NYSE:OLN) but similarly valued. We will take a look at Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB), Uniti Group Inc. (NASDAQ:UNIT), Immunovant, Inc. (NASDAQ:IMVT), PQ Group Holdings Inc. (NYSE:PQG), SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), American Eagle Outfitters Inc. (NYSE:AEO), and Madison Square Garden Entertainment Corp. (NYSE:MSGE). This group of stocks' market values match OLN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMAB,4,34250,0 UNIT,17,79043,4 IMVT,31,330242,3 PQG,6,46807,-1 SWTX,15,754975,1 AEO,36,519270,10 MSGE,38,404860,38 Average,21,309921,7.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $448 million in OLN's case. Madison Square Garden Entertainment Corp. (NYSE:MSGE) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB) is the least popular one with only 4 bullish hedge fund positions. Olin Corporation (NYSE:OLN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OLN is 75.9. 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 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on OLN as the stock returned 46.6% since the end of Q2 (through 10/30) 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.

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