Were These Hedge Funds Wrong About Dumping Owens Corning (OC)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Owens Corning (NYSE:OC) 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.

Owens Corning (NYSE:OC) shareholders have witnessed an increase in hedge fund sentiment of late. Owens Corning (NYSE:OC) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 47. Our calculations also showed that OC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s analyze the fresh hedge fund action encompassing Owens Corning (NYSE:OC).

How have hedgies been trading Owens Corning (NYSE:OC)?

At Q2’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in OC 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.

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the biggest position in Owens Corning (NYSE:OC), worth close to $175.9 million, accounting for 0.1% of its total 13F portfolio. On Citadel Investment Group’s heels is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $70.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Cliff Asness’s AQR Capital Management, Edgar Wachenheim’s Greenhaven Associates and Gregg Moskowitz’s Interval Partners. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Owens Corning (NYSE:OC), around 3.48% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, earmarking 3.19 percent of its 13F equity portfolio to OC.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, established the biggest position in Owens Corning (NYSE:OC). Holocene Advisors had $23.8 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $15 million position during the quarter. The following funds were also among the new OC investors: Steve Cohen’s Point72 Asset Management, D. E. Shaw’s D E Shaw, and Schonfeld Strategic Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Owens Corning (NYSE:OC) but similarly valued. These stocks are Vroom, Inc. (NASDAQ:VRM), ANGI Homeservices Inc (NASDAQ:ANGI), Manhattan Associates, Inc. (NASDAQ:MANH), Canopy Growth Corporation (NYSE:CGC), Post Holdings Inc (NYSE:POST), Five Below Inc (NASDAQ:FIVE), and NovoCure Limited (NASDAQ:NVCR). This group of stocks’ market values match OC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $576 million in OC’s case. ANGI Homeservices Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 11 bullish hedge fund positions. Owens Corning (NYSE:OC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OC is 68.8. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on OC as the stock returned 18.3% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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