Is OM Stock A Buy or Sell?

The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Outset Medical, Inc. (NASDAQ:OM).

Is OM stock a buy? Prominent investors were selling. The number of long hedge fund positions fell by 3 in recent months. Outset Medical, Inc. (NASDAQ:OM) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 27. Our calculations also showed that OM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 27 hedge funds in our database with OM holdings at the end of September.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 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. Now let’s take a look at the latest hedge fund action regarding Outset Medical, Inc. (NASDAQ:OM).

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

At the end of December, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in OM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, D1 Capital Partners, managed by Daniel Sundheim, holds the most valuable position in Outset Medical, Inc. (NASDAQ:OM). D1 Capital Partners has a $260.1 million position in the stock, comprising 1.2% of its 13F portfolio. Coming in second is Perceptive Advisors, managed by Joseph Edelman, which holds a $161.9 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions contain Christopher James’s Partner Fund Management, Efrem Kamen’s Pura Vida Investments and Louis Bacon’s Moore Global Investments. In terms of the portfolio weights assigned to each position Pinz Capital allocated the biggest weight to Outset Medical, Inc. (NASDAQ:OM), around 1.88% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, setting aside 1.74 percent of its 13F equity portfolio to OM.

Since Outset Medical, Inc. (NASDAQ:OM) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers who sold off their full holdings in the fourth quarter. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $7 million in stock. Jerome Pfund and Michael Sjostrom’s fund, Sectoral Asset Management, also dropped its stock, about $3.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds in the fourth quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Outset Medical, Inc. (NASDAQ:OM) but similarly valued. We will take a look at EPR Properties (NYSE:EPR), CNX Resources Corporation (NYSE:CNX), Terex Corporation (NYSE:TEX), Yelp Inc (NYSE:YELP), Dycom Industries, Inc. (NYSE:DY), Masonite International Corp (NYSE:DOOR), and Independent Bank Corp (NASDAQ:INDB). This group of stocks’ market valuations resemble OM’s market valuation.

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As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $586 million in OM’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 7 bullish hedge fund positions. Outset Medical, Inc. (NASDAQ:OM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OM is 64.1. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market again by 0.9 percentage points. Unfortunately OM wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on OM were disappointed as the stock returned -5.3% since the end of December (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 many of these stocks already outperformed the market since 2019.

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