Did Hedge Funds Make The Right Call On Oshkosh Corporation (OSK) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Oshkosh Corporation (NYSE:OSK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Oshkosh Corporation (NYSE:OSK) a bargain? The smart money was taking a bearish view. The number of bullish hedge fund bets were trimmed by 6 in recent months. Our calculations also showed that OSK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). OSK was in 22 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with OSK holdings at the end of the previous quarter.

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

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 S&P 500 ETFs by 58 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 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.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s check out the fresh hedge fund action surrounding Oshkosh Corporation (NYSE:OSK).

What does smart money think about Oshkosh Corporation (NYSE:OSK)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in OSK a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Oshkosh Corporation (NYSE:OSK), with a stake worth $95.8 million reported as of the end of September. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $38.4 million. Atlantic Investment Management, Lodge Hill Capital, and Skylands 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 Atlantic Investment Management allocated the biggest weight to Oshkosh Corporation (NYSE:OSK), around 13.15% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, designating 8.09 percent of its 13F equity portfolio to OSK.

Judging by the fact that Oshkosh Corporation (NYSE:OSK) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that decided to sell off their entire stakes heading into Q4. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of the 750 funds monitored by Insider Monkey, valued at about $36.4 million in stock. Noam Gottesman’s fund, GLG Partners, also dropped its stock, about $36.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Oshkosh Corporation (NYSE:OSK) but similarly valued. These stocks are Dunkin Brands Group Inc (NASDAQ:DNKN), New York Community Bancorp, Inc. (NYSE:NYCB), CoreSite Realty Corp (NYSE:COR), and Chegg Inc (NYSE:CHGG). This group of stocks’ market caps are closest to OSK’s market cap.

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As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $215 million in OSK’s case. Dunkin Brands Group Inc (NASDAQ:DNKN) is the most popular stock in this table. On the other hand New York Community Bancorp, Inc. (NYSE:NYCB) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Oshkosh Corporation (NYSE:OSK) is even less popular than NYCB. Hedge funds dodged a bullet by taking a bearish stance towards OSK. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately OSK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); OSK investors were disappointed as the stock returned 11.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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