Hedge Funds Are Dumping Ocwen Financial Corporation (OCN)
Nina Todic
Is Ocwen Financial Corporation (NYSE:OCN) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Hedge fund interest in Ocwen Financial Corporation (NYSE:OCN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare OCN to other stocks including Hooker Furniture Corporation (NASDAQ:HOFT), Invacare Corporation (NYSE:IVC), and Assembly Biosciences Inc (NASDAQ:ASMB) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
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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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to check out the new hedge fund action surrounding Ocwen Financial Corporation (NYSE:OCN).
What have hedge funds been doing with Ocwen Financial Corporation (NYSE:OCN)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in OCN over the last 17 quarters. 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 Ocwen Financial Corporation (NYSE:OCN) was held by Omega Advisors, which reported holding $20.1 million worth of stock at the end of September. It was followed by GLG Partners with a $4.8 million position. Other investors bullish on the company included CQS Cayman LP, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Omega Advisors allocated the biggest weight to Ocwen Financial Corporation (NYSE:OCN), around 1.2% of its 13F portfolio. CQS Cayman LP is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to OCN.
Because Ocwen Financial Corporation (NYSE:OCN) has witnessed bearish sentiment from the smart money, it's safe to say that there exists a select few hedge funds who were dropping their positions entirely last quarter. Intriguingly, Phil Frohlich's Prescott Group Capital Management cut the largest position of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $0.2 million in stock, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital was right behind this move, as the fund cut about $0 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Ocwen Financial Corporation (NYSE:OCN) but similarly valued. We will take a look at Hooker Furniture Corporation (NASDAQ:HOFT), Invacare Corporation (NYSE:IVC), Assembly Biosciences Inc (NASDAQ:ASMB), and Landcadia Holdings II, Inc. (NASDAQ:LCAHU). This group of stocks' market values are closest to OCN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOFT,10,46096,4 IVC,13,68290,-1 ASMB,16,64291,-2 LCAHU,20,85875,2 Average,14.75,66138,0.75 [/table]
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $32 million in OCN's case. Landcadia Holdings II, Inc. (NASDAQ:LCAHU) is the most popular stock in this table. On the other hand Hooker Furniture Corporation (NASDAQ:HOFT) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Ocwen Financial Corporation (NYSE:OCN) is even less popular than HOFT. Hedge funds dodged a bullet by taking a bearish stance towards OCN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OCN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OCN investors were disappointed as the stock returned -17% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
