Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is OceanFirst Financial Corp. (NASDAQ:OCFC) undervalued? The smart money is turning less bullish. The number of long hedge fund bets shrunk by 3 in recent months. Our calculations also showed that ocfc isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the fresh hedge fund action regarding OceanFirst Financial Corp. (NASDAQ:OCFC).
What have hedge funds been doing with OceanFirst Financial Corp. (NASDAQ:OCFC)?
Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OCFC over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in OceanFirst Financial Corp. (NASDAQ:OCFC) was held by Renaissance Technologies, which reported holding $27.2 million worth of stock at the end of December. It was followed by Private Capital Management with a $7.6 million position. Other investors bullish on the company included Driehaus Capital, Citadel Investment Group, and AlphaOne Capital Partners.
Judging by the fact that OceanFirst Financial Corp. (NASDAQ:OCFC) has faced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of hedgies who sold off their full holdings by the end of the third quarter. Intriguingly, Anton Schutz’s Mendon Capital Advisors said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $8.6 million in stock, and Fred Cummings’s Elizabeth Park Capital Management was right behind this move, as the fund said goodbye to about $4.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as OceanFirst Financial Corp. (NASDAQ:OCFC) but similarly valued. These stocks are SemGroup Corp (NYSE:SEMG), Editas Medicine, Inc. (NASDAQ:EDIT), Casa Systems, Inc. (NASDAQ:CASA), and Standard Motor Products, Inc. (NYSE:SMP). This group of stocks’ market caps match OCFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEMG | 12 | 34576 | 5 |
| EDIT | 18 | 105423 | 1 |
| CASA | 12 | 28507 | 2 |
| SMP | 11 | 128746 | 1 |
| Average | 13.25 | 74313 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $58 million in OCFC’s case. Editas Medicine, Inc. (NASDAQ:EDIT) is the most popular stock in this table. On the other hand Standard Motor Products, Inc. (NYSE:SMP) is the least popular one with only 11 bullish hedge fund positions. OceanFirst Financial Corp. (NASDAQ:OCFC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately OCFC wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); OCFC investors were disappointed as the stock returned 8.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
