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 Option Care Health, Inc. (NASDAQ:OPCH).
Option Care Health, Inc. (NASDAQ:OPCH) was in 18 hedge funds’ portfolios at the end of September. The all time high for this statistic is 23. OPCH investors should be aware of an increase in hedge fund sentiment of late. There were 11 hedge funds in our database with OPCH holdings at the end of June. Our calculations also showed that OPCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are a multitude of gauges market participants employ to evaluate publicly traded companies. Some of the most underrated gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can outpace the S&P 500 by a healthy amount (see the details here).
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. 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 we’re going to go over the new hedge fund action surrounding Option Care Health, Inc. (NASDAQ:OPCH).
Do Hedge Funds Think OPCH Is A Good Stock To Buy Now?
At the end of September, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 64% from the second quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in OPCH a year ago. 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 Option Care Health, Inc. (NASDAQ:OPCH) was held by Park West Asset Management, which reported holding $53.5 million worth of stock at the end of September. It was followed by Polar Capital with a $27.2 million position. Other investors bullish on the company included Royce & Associates, Point72 Asset Management, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Park West Asset Management allocated the biggest weight to Option Care Health, Inc. (NASDAQ:OPCH), around 2.07% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to OPCH.
As industrywide interest jumped, specific money managers were breaking ground themselves. Park West Asset Management, managed by Peter S. Park, created the most outsized position in Option Care Health, Inc. (NASDAQ:OPCH). Park West Asset Management had $53.5 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $6.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Efrem Kamen’s Pura Vida Investments, Ken Griffin’s Citadel Investment Group, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Option Care Health, Inc. (NASDAQ:OPCH) but similarly valued. These stocks are Evertec Inc (NYSE:EVTC), NuVasive, Inc. (NASDAQ:NUVA), Evoqua Water Technologies Corp. (NYSE:AQUA), Cimarex Energy Co (NYSE:XEC), Pluralsight, Inc. (NASDAQ:PS), Teradata Corporation (NYSE:TDC), and Opko Health Inc. (NYSE:OPK). This group of stocks’ market caps resemble OPCH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVTC | 21 | 316649 | 3 |
| NUVA | 26 | 335263 | -7 |
| AQUA | 21 | 216210 | 4 |
| XEC | 38 | 563605 | -1 |
| PS | 24 | 183954 | -3 |
| TDC | 33 | 342569 | 2 |
| OPK | 11 | 26649 | -5 |
| Average | 24.9 | 283557 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $284 million. That figure was $138 million in OPCH’s case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Opko Health Inc. (NYSE:OPK) is the least popular one with only 11 bullish hedge fund positions. Option Care Health, Inc. (NASDAQ:OPCH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OPCH is 46.4. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately OPCH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OPCH investors were disappointed as the stock returned 7.9% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow Option Care Health Inc. (NASDAQ:OPCH)
Follow Option Care Health Inc. (NASDAQ:OPCH)
Disclosure: None. This article was originally published at Insider Monkey.
