Is OLED Stock A Buy or Sell?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Universal Display Corporation (NASDAQ:OLED).

Is OLED stock a buy? Universal Display Corporation (NASDAQ:OLED) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 33. OLED shareholders have witnessed an increase in enthusiasm from smart money lately. There were 20 hedge funds in our database with OLED positions at the end of the third quarter. Our calculations also showed that OLED isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind let’s take a gander at the new hedge fund action surrounding Universal Display Corporation (NASDAQ:OLED).

Do Hedge Funds Think OLED Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OLED over the last 22 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Universal Display Corporation (NASDAQ:OLED), which was worth $16.8 million at the end of the fourth quarter. On the second spot was Kayak Investment Partners which amassed $14.9 million worth of shares. Two Sigma Advisors, Millennium Management, and D E Shaw 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 Kayak Investment Partners allocated the biggest weight to Universal Display Corporation (NASDAQ:OLED), around 1.87% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, earmarking 0.71 percent of its 13F equity portfolio to OLED.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Kayak Investment Partners, managed by Daryl Smith, assembled the most valuable position in Universal Display Corporation (NASDAQ:OLED). Kayak Investment Partners had $14.9 million invested in the company at the end of the quarter. Suraj Parkash Chopra’s Force Hill Capital Management also made a $3.4 million investment in the stock during the quarter. The following funds were also among the new OLED investors: Greg Eisner’s Engineers Gate Manager, Paul Tudor Jones’s Tudor Investment Corp, and Jinghua Yan’s TwinBeech Capital.

Let’s check out hedge fund activity in other stocks similar to Universal Display Corporation (NASDAQ:OLED). These stocks are Guidewire Software Inc (NYSE:GWRE), Pegasystems Inc. (NASDAQ:PEGA), LKQ Corporation (NASDAQ:LKQ), Allegion plc (NYSE:ALLE), Lumen Technologies, Inc. (NYSE:LUMN), Advance Auto Parts, Inc. (NYSE:AAP), and Zynga Inc (NASDAQ:ZNGA). This group of stocks’ market caps resemble OLED’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $1323 million. That figure was $94 million in OLED’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Allegion plc (NYSE:ALLE) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Universal Display Corporation (NASDAQ:OLED) is even less popular than ALLE. Our overall hedge fund sentiment score for OLED is 30.8. 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. Hedge funds dodged a bullet by taking a bearish stance towards OLED. Our calculations showed that the top 30 most popular hedge fund stocks returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th but managed to beat the market again by 0.9 percentage points. Unfortunately OLED wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was very bearish); OLED investors were disappointed as the stock returned -1.3% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.