Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Omnicom Group Inc. (NYSE:OMC) changed recently.
Is Omnicom Group Inc. (NYSE:OMC) the right investment to pursue these days? Hedge funds are becoming more confident. The number of bullish hedge fund positions went up by 3 lately. Our calculations also showed that OMC isn’t among the 30 most popular stocks among hedge funds (view the video below). OMC was in 23 hedge funds’ portfolios at the end of June. There were 20 hedge funds in our database with OMC positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let’s take a peek at the key hedge fund action surrounding Omnicom Group Inc. (NYSE:OMC).
What have hedge funds been doing with Omnicom Group Inc. (NYSE:OMC)?
At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in OMC over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Omnicom Group Inc. (NYSE:OMC) was held by Pzena Investment Management, which reported holding $347.5 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $63.5 million position. Other investors bullish on the company included Ariel Investments, Two Sigma Advisors, and AQR Capital Management.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the most outsized position in Omnicom Group Inc. (NYSE:OMC). Winton Capital Management had $6.2 million invested in the company at the end of the quarter. James Dondero’s Highland Capital Management also initiated a $3.3 million position during the quarter. The other funds with brand new OMC positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Louis Navellier’s Navellier & Associates, and Bruce Kovner’s Caxton Associates LP.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Omnicom Group Inc. (NYSE:OMC) but similarly valued. These stocks are Grifols SA (NASDAQ:GRFS), DISH Network Corp. (NASDAQ:DISH), Fastenal Company (NASDAQ:FAST), and Incyte Corporation (NASDAQ:INCY). This group of stocks’ market values are closest to OMC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRFS | 16 | 265646 | 2 |
| DISH | 32 | 1599504 | 5 |
| FAST | 29 | 1154953 | 8 |
| INCY | 36 | 3728826 | -3 |
| Average | 28.25 | 1687232 | 3 |
View table here if you experience formatting issues.
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 $1687 million. That figure was $656 million in OMC’s case. Incyte Corporation (NASDAQ:INCY) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 16 bullish hedge fund positions. Omnicom Group Inc. (NYSE:OMC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 OMC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OMC investors were disappointed as the stock returned -3.7% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
