How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ORBCOMM Inc (NASDAQ:ORBC) and determine whether hedge funds had an edge regarding this stock.
ORBCOMM Inc (NASDAQ:ORBC) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. ORBCOMM Inc (NASDAQ:ORBC) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ORBC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phillip Gross of Adage Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a gander at the fresh hedge fund action encompassing ORBCOMM Inc (NASDAQ:ORBC).
What have hedge funds been doing with ORBCOMM Inc (NASDAQ:ORBC)?
At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ORBC over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of ORBCOMM Inc (NASDAQ:ORBC), with a stake worth $29.7 million reported as of the end of September. Trailing Adage Capital Management was Ariel Investments, which amassed a stake valued at $6.9 million. Rubric Capital Management, Renaissance Technologies, and Two Sigma Advisors 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 Rubric Capital Management allocated the biggest weight to ORBCOMM Inc (NASDAQ:ORBC), around 0.74% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to ORBC.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in ORBCOMM Inc (NASDAQ:ORBC). Arrowstreet Capital had $0.6 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.1 million position during the quarter. The following funds were also among the new ORBC investors: Matthew Hulsizer’s PEAK6 Capital Management, Parvinder Thiara’s Athanor Capital, and Cliff Asness’s AQR Capital Management.
Let’s go over hedge fund activity in other stocks similar to ORBCOMM Inc (NASDAQ:ORBC). We will take a look at Akoustis Technologies, Inc. (NASDAQ:AKTS), Seneca Foods Corp. (NASDAQ:SENEB), HEXO Corp. (NYSE:HEXO), Contango Oil & Gas Company (NYSE:MCF), Craft Brew Alliance Inc (NASDAQ:BREW), Haverty Furniture Companies, Inc. (NYSE:HVT), and New Senior Investment Group Inc (NYSE:SNR). This group of stocks’ market valuations are similar to ORBC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AKTS | 6 | 14299 | 3 |
| SENEB | 2 | 1966 | 0 |
| HEXO | 5 | 207 | -2 |
| MCF | 3 | 3790 | -3 |
| BREW | 15 | 36535 | 4 |
| HVT | 11 | 42327 | 1 |
| SNR | 12 | 44292 | 2 |
| Average | 7.7 | 20488 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.7 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $58 million in ORBC’s case. Craft Brew Alliance Inc (NASDAQ:BREW) is the most popular stock in this table. On the other hand Seneca Foods Corp. (NASDAQ:SENEB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks ORBCOMM Inc (NASDAQ:ORBC) is more popular among hedge funds. Our overall hedge fund sentiment score for ORBC is 86. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately ORBC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ORBC were disappointed as the stock returned -11.7% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
