Did Hedge Funds Make The Right Call On Outfront Media Inc (OUT) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtOutfront Media Inc (NYSE:OUT) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Outfront Media Inc (NYSE:OUT) investors should be aware of a decrease in hedge fund interest recently. Our calculations also showed that OUT 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).

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.

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Now we’re going to go over the recent hedge fund action encompassing Outfront Media Inc (NYSE:OUT).

Hedge fund activity in Outfront Media Inc (NYSE:OUT)

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OUT over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Select Equity Group was the largest shareholder of Outfront Media Inc (NYSE:OUT), with a stake worth $85.7 million reported as of the end of September. Trailing Select Equity Group was Eminence Capital, which amassed a stake valued at $49 million. ValueAct Capital, Renaissance Technologies, and P2 Capital Partners 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 P2 Capital Partners allocated the biggest weight to Outfront Media Inc (NYSE:OUT), around 3.63% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, dishing out 2.91 percent of its 13F equity portfolio to OUT.

Due to the fact that Outfront Media Inc (NYSE:OUT) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there were a few funds that slashed their positions entirely in the first quarter. It’s worth mentioning that Jonathan Litt’s Land & Buildings Investment Management said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $34.5 million in stock. Greg Poole’s fund, Echo Street Capital Management, also dropped its stock, about $28.2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Outfront Media Inc (NYSE:OUT). These stocks are Cornerstone OnDemand, Inc. (NASDAQ:CSOD), Sunstone Hotel Investors Inc (NYSE:SHO), Columbia Banking System Inc (NASDAQ:COLB), and Endava plc (NYSE:DAVA). This group of stocks’ market caps are similar to OUT’s market cap.

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 $188 million. That figure was $329 million in OUT’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Outfront Media Inc (NYSE:OUT) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately OUT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on OUT were disappointed as the stock returned 5.1% 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 in 2020.

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