Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Owens-Illinois Inc (NYSE:OI) investors should pay attention to a decrease in hedge fund sentiment lately. 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 Companhia Brasileira de Distrib. (ADR) (NYSE:CBD), Radian Group Inc (NYSE:RDN), and Corelogic Inc (NYSE:CLGX) to gather more data points.
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To the average investor, there are several indicators market participants have at their disposal to appraise their stock investments. Two of the most under-the-radar indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite investment managers can outpace their index-focused peers by a superb amount (see the details here).
Now, we’re going to analyze the new action encompassing Owens-Illinois Inc (NYSE:OI).
Hedge fund activity in Owens-Illinois Inc (NYSE:OI)
Heading into Q4, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a slump of 31% from one quarter earlier. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Alexander Roepers’s Atlantic Investment Management has the most valuable position in Owens-Illinois Inc (NYSE:OI), worth close to $221.9 million, corresponding to 21.1% of its total 13F portfolio. The second most bullish fund manager is Robert Rodriguez and Steven Romick of First Pacific Advisors LLC, with a $194.3 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining peers that hold long positions comprise William B. Gray’s Orbis Investment Management, David Einhorn’s Greenlight Capital and John Osterweis’s Osterweis Capital Management.
Since Owens-Illinois Inc (NYSE:OI) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that decided to sell off their entire stakes in the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management sold off the largest stake of the 700 funds watched by Insider Monkey, valued at an estimated $5.5 million in call options, and Brian Jackelow’s SAB Capital Management was right behind this move, as the fund said goodbye to about $4.6 million worth of options. These moves are important to note, as total hedge fund interest dropped by 11 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Owens-Illinois Inc (NYSE:OI) but similarly valued. We will take a look at Companhia Brasileira de Distrib. (ADR) (NYSE:CBD), Radian Group Inc (NYSE:RDN), Corelogic Inc (NYSE:CLGX), and ENSCO PLC (NYSE:ESV). All of these stocks’ market caps resemble OI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBD | 8 | 31216 | -1 |
| RDN | 33 | 864463 | 2 |
| CLGX | 29 | 374931 | 2 |
| ESV | 29 | 297553 | 7 |
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 $392 million. That figure was $814 million in OI’s case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table, whereas Companhia Brasileira de Distrib. (ADR) (NYSE:CBD) is the laggard with only 8 bullish hedge fund positions. Owens-Illinois Inc (NYSE:OI) may not be the least popular stock in this group, but hedge fund interest is still below average and, since we see this as a slightly negative signal, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RDN might be a better candidate to consider a long position.
