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 Outfront Media Inc (NYSE:OUT) and determine whether hedge funds had an edge regarding this stock.
Is Outfront Media Inc (NYSE:OUT) a healthy stock for your portfolio? Prominent investors were turning bullish. The number of bullish hedge fund positions improved by 8 lately. Outfront Media Inc (NYSE:OUT) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that OUT 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). There were 30 hedge funds in our database with OUT holdings at the end of March.
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.
Parag Vora of HG Vora Capital Management
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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s analyze the recent hedge fund action regarding Outfront Media Inc (NYSE:OUT).
How are hedge funds trading Outfront Media Inc (NYSE:OUT)?
Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in OUT over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Outfront Media Inc (NYSE:OUT) was held by Eminence Capital, which reported holding $89.7 million worth of stock at the end of September. It was followed by Rima Senvest Management with a $54.6 million position. Other investors bullish on the company included Jericho Capital Asset Management, Citadel Investment Group, and HG Vora Capital Management. In terms of the portfolio weights assigned to each position Land & Buildings Investment Management allocated the biggest weight to Outfront Media Inc (NYSE:OUT), around 5.62% of its 13F portfolio. Calixto Global Investors is also relatively very bullish on the stock, dishing out 4.56 percent of its 13F equity portfolio to OUT.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Jericho Capital Asset Management, managed by Josh Resnick, initiated the largest position in Outfront Media Inc (NYSE:OUT). Jericho Capital Asset Management had $53.6 million invested in the company at the end of the quarter. Parag Vora’s HG Vora Capital Management also initiated a $35.4 million position during the quarter. The other funds with new positions in the stock are David Rosen’s Rubric Capital Management, Jonathan Litt’s Land & Buildings Investment Management, and Sander Gerber’s Hudson Bay Capital Management.
Let’s check out hedge fund activity in other stocks similar to Outfront Media Inc (NYSE:OUT). These stocks are Tower Semiconductor Ltd. (NASDAQ:TSEM), Worthington Industries, Inc. (NYSE:WOR), CIT Group Inc. (NYSE:CIT), Enable Midstream Partners LP (NYSE:ENBL), Washington Federal Inc. (NASDAQ:WAFD), Arcosa, Inc. (NYSE:ACA), and Columbia Banking System Inc (NASDAQ:COLB). All of these stocks’ market caps are similar to OUT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSEM | 15 | 312269 | 4 |
| WOR | 21 | 77248 | 7 |
| CIT | 27 | 320526 | -10 |
| ENBL | 5 | 11040 | -1 |
| WAFD | 14 | 34823 | -4 |
| ACA | 16 | 156074 | -1 |
| COLB | 9 | 85368 | -3 |
| Average | 15.3 | 142478 | -1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.3 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $470 million in OUT’s case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Outfront Media Inc (NYSE:OUT) is more popular among hedge funds. Our overall hedge fund sentiment score for OUT is 90. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on OUT as the stock returned 19.5% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
