Is Otter Tail Corporation (OTTR) Going to Burn These Hedge Funds?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Otter Tail Corporation (NASDAQ:OTTR).

Otter Tail Corporation (NASDAQ:OTTR) was in 13 hedge funds’ portfolios at the end of the third quarter of 2015. Otter Tail Corporation (NASDAQ:OTTR) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. There were 7 hedge funds in our database with Otter Tail Corporation (NASDAQ:OTTR) holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Ultra Petroleum Corp. (NYSE:UPL), ScanSource, Inc. (NASDAQ:SCSC), and Xoom Corp (NASDAQ:XOOM) to gather more data points.

In the eyes of most market participants, hedge funds are seen as worthless, outdated investment tools of years past. While there are more than an 8000 funds trading at the moment, Our experts choose to focus on the crème de la crème of this club, about 700 funds. These investment experts control bulk of all hedge funds’ total capital, and by tailing their matchless stock picks, Insider Monkey has determined a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s check out the latest action surrounding Otter Tail Corporation (NASDAQ:OTTR).

Hedge fund activity in Otter Tail Corporation (NASDAQ:OTTR)

At the end of Q3, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 86% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Mario Gabelli’s GAMCO Investors has the number one position in Otter Tail Corporation (NASDAQ:OTTR), worth close to $10.4 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $4.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Israel Englander’s Millennium Management, Roger Ibbotson’s Zebra Capital Management, and Cliff Asness’ AQR Capital Management.

As one would reasonably expect, specific money managers have jumped into Otter Tail Corporation (NASDAQ:OTTR) headfirst. Millennium Management assembled the most outsized position in Otter Tail Corporation (NASDAQ:OTTR). Millennium Management had $2.3 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new OTTR investors: John Overdeck and David Siegel’s Two Sigma Advisors, Glenn Russell Dubin’s Highbridge Capital Management, and D E Shaw.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as an Otter Tail Corporation (NASDAQ: OTTR) but similarly valued. These stocks are Ultra Petroleum Corp. (NYSE:UPL), ScanSource, Inc. (NASDAQ:SCSC), Xoom Corp (NASDAQ:XOOM), and Boston Private Financial Hldg Inc (NASDAQ:BPFH). This group of stocks’ market caps is closest to Otter Tail Corporation (NASDAQ: OTTR)’s market cap.

As you can see, these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $23 million in Otter Tail Corporation (NASDAQ: OTTR)’s case. Ultra Petroleum Corp. (NYSE:UPL) is the most popular stock in this table. On the other hand, ScanSource, Inc. (NASDAQ:SCSC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks, Otter Tail Corporation (NASDAQ:OTTR) is even less popular than ScanSource, Inc. (NASDAQ:SCSC). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.