Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Norbord Inc. (NYSE:OSB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Norbord Inc. (NYSE:OSB) ready to rally soon? The smart money is in a bullish mood. The number of long hedge fund positions improved by 9 recently. Our calculations also showed that OSB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the key hedge fund action encompassing Norbord Inc. (NYSE:OSB).
How have hedgies been trading Norbord Inc. (NYSE:OSB)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 129% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in OSB a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the most valuable position in Norbord Inc. (NYSE:OSB). Millennium Management has a $10 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $8.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish consist of Dmitry Balyasny’s Balyasny Asset Management, Steve Cohen’s Point72 Asset Management and Mark Lee’s Mountaineer Partners Management. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Norbord Inc. (NYSE:OSB), around 6.52% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to OSB.
As one would reasonably expect, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in Norbord Inc. (NYSE:OSB). Balyasny Asset Management had $7.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $2.2 million investment in the stock during the quarter. The following funds were also among the new OSB investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Karim Abbadi and Edward McBride’s Centiva Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Norbord Inc. (NYSE:OSB). We will take a look at EVO Payments, Inc. (NASDAQ:EVOP), PriceSmart, Inc. (NASDAQ:PSMT), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), and Tri Pointe Group Inc (NYSE:TPH). This group of stocks’ market valuations are similar to OSB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVOP | 22 | 89278 | 7 |
| PSMT | 18 | 51318 | 8 |
| AUPH | 21 | 641333 | 8 |
| TPH | 32 | 319438 | 4 |
| Average | 23.25 | 275342 | 6.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $52 million in OSB’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand PriceSmart, Inc. (NASDAQ:PSMT) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Norbord Inc. (NYSE:OSB) is even less popular than PSMT. Hedge funds dodged a bullet by taking a bearish stance towards OSB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately OSB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OSB investors were disappointed as the stock returned -56% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
