Is OSTK Stock A Buy or Sell?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Overstock.com, Inc. (NASDAQ:OSTK) to find out whether there were any major changes in hedge funds’ views.

Is OSTK stock a buy? Prominent investors were taking a bullish view. The number of bullish hedge fund positions advanced by 2 lately. Overstock.com, Inc. (NASDAQ:OSTK) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that OSTK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 22 hedge funds in our database with OSTK holdings at the end of September.

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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Peter Rathjens of Arrowstreet Capital

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. With all of this in mind we’re going to take a look at the fresh hedge fund action encompassing Overstock.com, Inc. (NASDAQ:OSTK).

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

Heading into the first quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OSTK over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Overstock.com, Inc. (NASDAQ:OSTK), which was worth $41.3 million at the end of the fourth quarter. On the second spot was GMT Capital which amassed $31.7 million worth of shares. Arrowstreet Capital, Portolan Capital Management, and Citadel Investment Group 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 GMT Capital allocated the biggest weight to Overstock.com, Inc. (NASDAQ:OSTK), around 2.26% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, setting aside 1.13 percent of its 13F equity portfolio to OSTK.

Consequently, key hedge funds were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Overstock.com, Inc. (NASDAQ:OSTK). Point72 Asset Management had $6.7 million invested in the company at the end of the quarter. Stephen Mildenhall’s Contrarius Investment Management also initiated a $4.1 million position during the quarter. The other funds with brand new OSTK positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Michael Gelband’s ExodusPoint Capital, and Joel Greenblatt’s Gotham Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Overstock.com, Inc. (NASDAQ:OSTK) but similarly valued. We will take a look at PDC Energy Inc (NASDAQ:PDCE), Piedmont Office Realty Trust, Inc. (NYSE:PDM), Arco Platform Limited (NASDAQ:ARCE), Cooper Tire & Rubber Company (NYSE:CTB), Progress Software Corporation (NASDAQ:PRGS), Brandywine Realty Trust (NYSE:BDN), and First Merchants Corporation (NASDAQ:FRME). This group of stocks’ market values resemble OSTK’s market value.

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As you can see these stocks had an average of 15.3 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $157 million in OSTK’s case. Cooper Tire & Rubber Company (NYSE:CTB) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Overstock.com, Inc. (NASDAQ:OSTK) is more popular among hedge funds. Our overall hedge fund sentiment score for OSTK is 87. 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 returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on OSTK as the stock returned 42% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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