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Were Hedge Funds Right About Selling Olin Corporation (OLN)?

Nina Todic

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 28 holdings, data that is available nowhere else. Should you consider Olin Corporation (NYSE:OLN) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is Olin Corporation (NYSE:OLN) a great investment now? Hedge funds are selling. The number of bullish hedge fund bets were trimmed by 5 recently. Our calculations also showed that OLN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Michael Lowenstein Kensico Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the latest hedge fund action regarding Olin Corporation (NYSE:OLN).

How have hedgies been trading Olin Corporation (NYSE:OLN)?

At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the first quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in OLN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with OLN Positions

The largest stake in Olin Corporation (NYSE:OLN) was held by Adage Capital Management, which reported holding $208.6 million worth of stock at the end of March. It was followed by Kensico Capital with a $170.9 million position. Other investors bullish on the company included East Side Capital (RR Partners), Balyasny Asset Management, and BeaconLight Capital.

Since Olin Corporation (NYSE:OLN) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there were a few funds who sold off their full holdings last quarter. Intriguingly, Israel Englander's Millennium Management dropped the largest position of the "upper crust" of funds followed by Insider Monkey, comprising close to $20.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund cut about $17 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to Olin Corporation (NYSE:OLN). We will take a look at Qualys Inc (NASDAQ:QLYS), Associated Banc-Corp (NYSE:ASB), Navistar International Corporation (NYSE:NAV), and Corelogic Inc (NYSE:CLGX). This group of stocks' market valuations match OLN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QLYS,17,134679,3 ASB,19,204043,3 NAV,26,1425899,3 CLGX,23,333684,6 Average,21.25,524576,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $604 million in OLN's case. Navistar International Corporation (NYSE:NAV) is the most popular stock in this table. On the other hand Qualys Inc (NASDAQ:QLYS) is the least popular one with only 17 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OLN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OLN were disappointed as the stock returned -13.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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