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 Olin Corporation (NYSE:OLN).
Is OLN stock a buy? Olin Corporation (NYSE:OLN) has experienced a decrease in hedge fund interest in recent months. Olin Corporation (NYSE:OLN) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. There were 33 hedge funds in our database with OLN positions at the end of the third quarter. Our calculations also showed that OLN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the 21st century investor’s toolkit there are plenty of indicators investors can use to analyze stocks. Some of the best indicators are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top investment managers can trounce their index-focused peers by a superb amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .
Richard S. Pzena of Pzena Investment Management
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Do Hedge Funds Think OLN Is A Good Stock To Buy Now?
At the end of December, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OLN over the last 22 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Sachem Head Capital, managed by Scott Ferguson, holds the most valuable position in Olin Corporation (NYSE:OLN). Sachem Head Capital has a $367.2 million position in the stock, comprising 12.8% of its 13F portfolio. The second most bullish fund manager is Pzena Investment Management, managed by Richard S. Pzena, which holds a $107.4 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Steven Richman’s East Side Capital (RR Partners), Phill Gross and Robert Atchinson’s Adage Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to Olin Corporation (NYSE:OLN), around 12.81% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, earmarking 12.08 percent of its 13F equity portfolio to OLN.
Judging by the fact that Olin Corporation (NYSE:OLN) has faced bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of money managers who sold off their full holdings in the fourth quarter. Interestingly, Robert Pohly’s Samlyn Capital sold off the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $23.5 million in stock, and Tom Sandell’s Sandell Asset Management was right behind this move, as the fund dumped about $3.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds in the fourth quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Olin Corporation (NYSE:OLN) but similarly valued. These stocks are Perspecta Inc. (NYSE:PRSP), Itron, Inc. (NASDAQ:ITRI), Tripadvisor Inc (NASDAQ:TRIP), Hawaiian Electric Industries, Inc. (NYSE:HE), DCP Midstream LP (NYSE:DCP), Black Hills Corporation (NYSE:BKH), and Wyndham Destinations, Inc. (NYSE:WYND). All of these stocks’ market caps match OLN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRSP | 37 | 935354 | 1 |
| ITRI | 6 | 275348 | -9 |
| TRIP | 41 | 1085144 | 12 |
| HE | 18 | 169156 | -1 |
| DCP | 3 | 12973 | 0 |
| BKH | 19 | 152822 | -3 |
| WYND | 29 | 588842 | 0 |
| Average | 21.9 | 459948 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $460 million. That figure was $743 million in OLN’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 3 bullish hedge fund positions. Olin Corporation (NYSE:OLN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OLN is 41. 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 30 most popular stocks among hedge funds 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 and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on OLN as the stock returned 72% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
