Hedge Funds Are Dumping Owens & Minor, Inc. (OMI)

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Owens & Minor, Inc. (NYSE:OMI) investors should pay attention to a decrease in hedge fund sentiment lately. There were 16 hedge funds in our database with OMI holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Globus Medical Inc (NYSE:GMED), KBR, Inc. (NYSE:KBR), and Dillard’s, Inc. (NYSE:DDS) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

www.BillionPhotos.com/Shutterstock.com

With all of this in mind, let’s take a look at the fresh action regarding Owens & Minor, Inc. (NYSE:OMI).

How have hedgies been trading Owens & Minor, Inc. (NYSE:OMI)?

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 19% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in OMI heading into this year. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Pzena Investment Management, led by Richard S. Pzena, holds the biggest position in Owens & Minor, Inc. (NYSE:OMI). According to its latest 13F filing, the fund has a $32.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Israel Englander’s Millennium Management, which holds a $26.7 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish comprise Chuck Royce’s Royce & Associates, Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that sold off their entire stakes in the stock during the third quarter. Interestingly, Anand Parekh’s Alyeska Investment Group sold off the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $19.6 million in Owens & Minor, Inc. (NYSE:OMI) stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund dumped about $13.3 million worth of shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Owens & Minor, Inc. (NYSE:OMI) but similarly valued. These stocks are Globus Medical Inc (NYSE:GMED), KBR, Inc. (NYSE:KBR), Dillard’s, Inc. (NYSE:DDS), and Nomad Foods Limited Ordinary Shares (NYSE:NOMD). This group of stocks’ market caps resemble OMI’s market cap.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $129 million in OMI’s case. Nomad Foods Limited Ordinary Shares (NYSE:NOMD) is the most popular stock in this table. On the other hand Globus Medical Inc (NYSE:GMED) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Owens & Minor, Inc. (NYSE:OMI) is even less popular than GMED. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none.