Was The Smart Money Right About Otis Worldwide Corporation (OTIS)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Otis Worldwide Corporation (NYSE:OTIS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Otis Worldwide Corporation (NYSE:OTIS) has seen a decrease in support from the world’s most elite money managers recently. Otis Worldwide Corporation (NYSE:OTIS) was in 45 hedge funds’ portfolios at the end of June. The all time high for this statistic is 59. There were 52 hedge funds in our database with OTIS holdings at the end of March. Our calculations also showed that OTIS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. 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 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Jeffrey Gates of Gates Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s take a glance at the recent hedge fund action regarding Otis Worldwide Corporation (NYSE:OTIS).

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

Heading into the third quarter of 2021, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OTIS over the last 24 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

The largest stake in Otis Worldwide Corporation (NYSE:OTIS) was held by Ako Capital, which reported holding $405.6 million worth of stock at the end of June. It was followed by Deccan Value Advisors with a $382 million position. Other investors bullish on the company included Gates Capital Management, Suvretta Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Deccan Value Advisors allocated the biggest weight to Otis Worldwide Corporation (NYSE:OTIS), around 15.06% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, designating 7.42 percent of its 13F equity portfolio to OTIS.

Judging by the fact that Otis Worldwide Corporation (NYSE:OTIS) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedge funds who were dropping their positions entirely heading into Q3. It’s worth mentioning that Andreas Halvorsen’s Viking Global dropped the biggest position of the 750 funds tracked by Insider Monkey, worth an estimated $467.8 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $75 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 7 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Otis Worldwide Corporation (NYSE:OTIS). We will take a look at SBA Communications Corporation (NASDAQ:SBAC), Corning Incorporated (NYSE:GLW), Welltower Inc. (NYSE:WELL), Nutrien Ltd. (NYSE:NTR), KKR & Co Inc. (NYSE:KKR), LyondellBasell Industries NV (NYSE:LYB), and Yum! Brands, Inc. (NYSE:YUM). This group of stocks’ market valuations match OTIS’s market valuation.

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As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1513 million. That figure was $2407 million in OTIS’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Welltower Inc. (NYSE:WELL) is the least popular one with only 19 bullish hedge fund positions. Otis Worldwide Corporation (NYSE:OTIS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OTIS is 58. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately OTIS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on OTIS were disappointed as the stock returned 0.2% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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